Earnings season: Netflix plays the Squid Game, wins subs beat

Netflix leverages a content backlog into millions of new subscribers according to its Q3 2021 earnings report.

Netflix earnings

Netflix’s headline stats

It’s been a good quarter for Netflix. New subscribers keep flooding in, seemingly attracted by new event TV shows, such as the global smash Squid Game. What’s more, Netflix’s EPS beat estimates too.

The key takeaways from Netflix’s third quarter earnings report are:

  • Revenues – $7.48 billion vs $7.48 billion forecast
  • Earnings per share (EPS) – $3.19 vs $2.56 estimated
  • New global paid subscription additions – 4.4 million vs 3.84 million forecast

The important thing to note here is the growth of new paid subscribers. These are Netflix’s bread and butter. Users may have been attracted to the streaming platform thanks to a large chunk of new shows and movies finally hitting Netflix. The pandemic appears to have created a significant backlog of content which is now making its way onto release schedules.

South Korean dystopian horror series Squid Game is the standout here. The show has been getting rave reviews and may become a significant draw going forward. According to Netflix, 142 million households watched Squid Game in its first four weeks.

“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,” the company said. Demand for consumer products related to the show is high, it added.

Netflix’s official guidance for subscriber numbers in Q4 is eight million – nearly double that of Q3. Is that overly optimistic? Maybe, but we are approaching winter in the Northern Hemisphere. Shorter days and colder temps may lead to an uptick in subscribers as people stay inside during winter conditions.

There is yet more content to come.

“We’re in uncharted territory,” Netflix co-CEO Reed Hastings said. “We have so much content coming in Q4 like we’ve never had, so we’ll have to feel our way through, and it rolls into a great next year also.”

Netflix share performance

As we can see, Netflix’s earnings per share levels beat expectations in Q3, coming in at $3.19 against $2.56 forecast by Wall Street.

Shares did drop 1% after the bell yesterday, however. It’s interesting. Achieving sustainable subscription growth is one of the cornerstones of Netflix’s business. You would have thought, after posting subscription and EPS beats, the firm’s shares would have grown.

As of Wednesday morning, Netflix shares are back in the green, trading for around $640.88 at the time of writing.

Where next for Netflix?

Netflix’s next frontier is gaming.

The streamer said it has begun testing video game streaming, possibly in a similar way to Microsoft’s cloud-based Game Pass service, in certain countries.

It’s still very early days for this, but Netflix subscribers may soon be able to play some form of video games via their TVs. It’s unlikely Netflix will be launching a console to compete with Sony, Nintendo, or Microsoft.

Personally, I can’t see them making great strides in this sphere. Gaming is already a highly competitive environment as it is, and Microsoft’s Game Pass has been a bit of a major market disruptor.

It would take a lot for Netflix to really make an impact on the gaming world, at least in the form of triple A titles, in my view. Mobile and app-based games are probably the way to go.

But with 200 million subscribers – double Xbox Live’s 100 million – and a competitive price point, some casual gamers might find a home with Netflix.

US Q3 earnings season is in full swing. Stay tuned for more updates. In the meantime, check out our earnings calendar to see which megacaps are reporting and when.