Netflix reports third quarter 2023 results

Netflix reports third quarter 2023 results

LOS GATOS, Calif. — Netflix, Inc. (NASDAQ: NFLX) has announced its third quarter 2023 financial results and business outlook.

The update includes:

• The company’s Q3 2023 shareholder letter;
• A Financial Statements spreadsheet; and
• A video interview with co-CEOs Ted Sarandos and Greg Peters, Chief Financial Officer Spence Neumann and VP, Finance/IR & Corporate Development Spencer Wang.

From the Shareholder Letter:

Q3 Results

Revenue in Q3’23 grew 8% year-over-year on a reported and a foreign exchange (F/X) neutral basis[1]. This was slightly above our forecast due to higher-than-expected member growth. Revenue growth in Q3 reflected a 9% year-over-year increase in average paid memberships (8.8M paid net additions vs. 2.4M in Q3’22) due to the roll out of paid sharing, strong, steady programming and the ongoing expansion of streaming globally. ARM[2] decreased 1% year-over-year both on a reported and F/X neutral basis, in-line with our expectations. This was due to a number of factors, including a higher percentage of membership growth from lower ARM countries, limited price increases over the past 18 months, and some shift in plan mix.

Q3’23 operating income totaled $1.9B vs. $1.5B last year (up 25% year over year), slightly above our guidance forecast due to the revenue upside and timing of content and other spending. As a result, we delivered an operating margin of 22.4% (vs 22.2% forecast), up three percentage points vs. the year ago quarter. EPS in Q3 was $3.73 vs. $3.10 and included a $173M million non-cash unrealized gain from F/X remeasurement on our Euro denominated debt, which is recognized below operating income in “interest and other income.”

Forecast

As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report. Our primary financial metrics are revenue for growth and operating margin for profitability. Our goal is to accelerate revenue growth, expand operating margin and deliver growing free cash flow. Nine months through the year, we are well positioned to meet these objectives in 2023.

We forecast Q4’23 revenue of $8.7B, up 11% year-over-year, or 12% on an F/X neutral basis. For the fourth quarter, we expect paid net additions will be similar to Q3’23 (+/- a few million). Global ARM in Q4 is expected to be roughly flat year-over-year, primarily due to limited price increases over the last eighteen months. In addition, over the past few months the US dollar strengthened versus other currencies, representing a roughly $200M expected drag on Q4 revenue and ARM (which is included in our forecast).

1. Excluding the year over year effect of foreign exchange rate movements. Assumes foreign exchange rates remained constant with foreign exchange rates from each of the corresponding months of the prior-year period.
2. ARM (Average Revenue per Membership) is defined as streaming revenue divided by the average number of streaming paid memberships divided by the number of months in the period. These figures do not include sales taxes or VAT.

Video Interview