Netflix Adds 4.4 Million New Subscribers In Q3FY21

Netflix's third-quarter revenue increased 16% year over year to $7.5 billion, while operating income increased 33% to $1.8 billion. On the basis of a better content slate, the platform added 4.4 million paid net additions in Q3'20, up from 2.2 million in Q3'20. Due to COVID-related production delays in 2020, Netflix's programming schedule was lower than usual in Q1 and Q2.

With 2.2 million paid net adds (half of the overall paid net adds), the APAC region was Netflix's greatest contributor to membership growth for the second quarter in a row, as it continues to improve the service in this area. Paid net additions in EMEA increased sequentially to 1.8 million from 188k in Q2, as certain titles had a particularly high impact.

“We’re very excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially,” said the company in its Q3 note to shareholders.

Revenue growth in Q3 was driven by a 9% and 7% increase in average paid streaming memberships and Average Revenue per Membership (ARM), respectively. Excluding a foreign exchange (FX) impact of +$128m, ARM rose 1 5% year over year. The operating margin for Q3 amounted to 23.5%, a three percentage point increase vs. the year-ago period. This was above Netflix's beginning of quarter forecast due to the timing of content spend, as well as lower than forecasted marketing spends.

For Q4’21, Netflix has forecast paid net adds of 8.5 million, consistent with Q4’20 paid net additions. For the full year 2021, it has forecast an operating margin of 20% or slightly better. This means that the Q4’21 operating margin will be approximately 6.5%, compared with 14% in Q4’20. The year-over-year decline in operating margin is due mostly to backloaded big content release schedule in this Q4, which will result in a roughly 19% year-over-year increase in content amortization for Q4’21 (compared with ~8% growth year to date).

Netflix said it is now producing local TV and film in approximately 45 countries and has built deep relationships with creative communities around the world. “While the goal of our local content executives is always to create locally authentic stories that will resonate in their country, Netflix is a global, direct-to-consumer service which enables creators to reach broader audiences — and gives our members an even greater choice of stories to enjoy,” it added.

The platform cited the example of Squid Game, which has become its biggest TV show ever. Released on September 17, a mind-boggling 142 million member households globally have chosen to watch the title in its first four weeks. “The breadth of Squid Game’s popularity is truly amazing; this show has been ranked as our #1 program in 94 countries (including the US). Like some of our other big hits, Squid Game has also pierced the cultural zeitgeist, spawning a Saturday Night Live skit and memes/clips on TikTok with more than 42 billion views. Demand for consumer products to celebrate the fandom for Squid Game is high, and those items are on their way to retail now.”

Later in the year, Netflix will shift to reporting on hours viewed for titles rather than the number of accounts that choose to watch them. "There is some difference in rankings, but we think engagement, as measured by hours viewed, is a slightly better indicator of the overall success of our titles and member satisfaction. It also matches how outside services measure TV viewing and gives proper credit to rewatching. In addition, we will start to release title metrics more regularly outside of our earnings report so our members and the industry can better measure success in the streaming world."

The platform has begun testing its games offering in select countries. It clarified that games on Netflix will be included in members’ subscriptions and will not have advertisements or in-app purchases, so gameplay is purely focused on enjoyment versus monetization. “It remains very early days for this initiative and, like other content categories we’ve expanded into, we plan to try different types of games, learn from our members and improve our game library. During Q3, we acquired Night School Studio, the maker of critically acclaimed games like OXENFREE, to help build out our game development capabilities.”