Netflix: Password-sharing crackdown helps streaming giant ‘under-promise and over-deliver’
Netflix’s password sharing crackdown seemed to have minimal effec, as beat third-quarter earnings predictions, consolidating its position as the streaming market leader.
The firm reported revenue growth of 15 per cent year-on-year to £7.5bn, with a net income of £1.7bn and earnings per share of £3.88, all surpassing analyst predictions.
Operating margins also improved to 30 per cent, up from 22 per cent in the same period last year.
However, the results suggest a slower subscriber growth, reflecting the crackdown on password sharing which took place in summer 2023, which limited merged accounts with people living in the same household.
Netflix added five million subscribers in the third quarter, falling slightly short of the eight million it added in the second and the 8.76 million from the third quarter of 2023, reflecting a slowdown in new sign-ups.
The streaming leader had forecast this decline in July, as the impact of this password model stabilised.
While total subscribers rose 14 per cent to 282 million, the growth rate lagged behind previous quarters.
Kathleen Brooks, research director at XTB, noted that “Netflix had a high chance of meeting third quarter expectations, but the market might have been disappointed, but the market might have been disappointed by the slower subscriber growth”.
One notable absence was global price hike, which analysts had anticipate would increase from $15 (£11.49) to $17 (£13.02).
Netflix raised its prices in only Italy and Spain, leaving US and UK subscribers unaffected for the time being.
Under-promising and over-delivering
AJ Bell analyst, Dan Coatsworth, said: “The company’s smart move of under-promising and over-delivering on earnings paid off”.
Russ Mould, investment director at AJ Bell, added that “cynics said there is no loyalty among streaming platforms and everyone who wants to use them has already signed up. Netflix’s latest results show that is not true. It continues to attract more people, keep existing customers happy, while also diversifying its income streams.”
Making incremental changes to the cost of a monthly subscription is a big test for a company’s pricing power. Netflix’s platform is so ingrained in people’s lives that it should be able to push up prices without causing a rush of people cancelling their membership.
If people do think twice about a higher price, Netflix has a clever back-up plan as its cheaper advertising-led tier could be enough to make people stay. They might have to put up with regular marketing messages, but that is standard practice for all streaming platforms now.”
Netflix’s diversified content portfolio and its upcoming inclusion of live sports and events, including the upcoming Mike Tyson vs. Jake Paul fight and NFL games, position the platform for further revenue expansion.
The company also saw a 35 per cent rise in ad-supported memberships, with plans to grow its ad tech platforms across Canada and other markets in 2025.
Shares surged in after-hours trading, as the company’s most profitable quarter to date reassured its investors.
Spencer Neumann, Netflix’s chief operating officer, projected revenues between $43-44bn ((£32-33bn) in 2025, up from the $38.8bn (£29.7bn) forecast from this year.
However, the Hollywood strikes slowed production, which could have boosted third quarter numbers further.
Coatsworth commented: “Netflix is still suffering from the hangover of the strikes, but consumer loyalty remains strong with an average of two hours a day spent on the platform”.