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Netflix’s Push to Boost Earnings Pays Off

Streaming giant delivers strong margins and robust growth even as subscriber additions cool

Updated ET

The fourth season of Netflix’s ‘Emily in Paris’ premiered during the third quarter. Photo: Stephanie Branchu/Netflix/Everett Collection

Netflix NFLX -2.04%decrease; red down pointing triangle reported its most profitable quarter ever despite slowing subscriber growth, a sign of the company’s success in giving priority to profitability over adding customers.

The streaming giant continued to add new customers in the third quarter, although at a slower pace than a year earlier, when its password-sharing crackdown initially took hold. Netflix added 5.07 million subscribers in the third quarter, compared with 8.76 million net new subscribers during the same period a year earlier.

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The results topped Wall Street’s expectations for major health metrics—from subscriber growth to revenue, income and free cash flow.

Netflix’s earnings strengthened an already significant lead in streaming as traditional entertainment companies such as Warner Bros. Discovery WBD -2.75%decrease; red down pointing triangle and Disney struggle to manage declines in their television business while continuing to invest in their direct-to-consumer offerings.

Netflix reported revenue of $9.83 billion for the third quarter, up 15% from a year earlier and beating its projections of $9.73 billion. Net income rose 41% to $2.36 billion, although the company forecast a drop in the fourth quarter to $1.85 billion.

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Netflix shares rose 4.7% after the company’s earnings report. The stock is up more than 46% so far this year.

Changes to its plan lineup have helped Netflix add customers and improve profit. To drive future revenue, Netflix is again asking customers to pay more: After recently raising prices in Japan and parts of Europe, the Middle East and Africa, the company said it would raise prices in Italy and Spain on Friday.

The company ended the quarter with 282.7 million subscribers globally, compared with 247.15 million subscribers a year earlier.

The streamer said its future growth is likely to come from continued investments in advertising and gaming.

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Co-CEO Greg Peters said Netflix is focused on being “a little better every day at delivering more entertainment value” to subscribers.

Netflix’s $6.99-a-month ad-supported tier of its service, which it launched in late 2022, has been off to a slow start, but the company said Thursday there are signs of green shoots. More than half of new subscribers in the markets where the ad tier is sold chose that plan during the third quarter, and ad-tier membership rose 35% quarter-to-quarter.

’Beverly Hills Cop: Axel F’ helped to drive viewership during the most recent quarter. Photo: Melinda Sue Gordon/Netflix/Everett Collection

While Netflix said it would take time for its ad tier to be a meaningful driver of revenue, executives said on an investor call that it expects revenue from ads to double in 2025.

To help attract advertisers, Netflix has continued to lean into streaming live events. Next month, it plans to stream a boxing match between influencer Jake Paul and former heavyweight champion Mike Tyson. It also is planning to stream two National Football League games on Christmas Day as part of a multiyear deal with the league.

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Its volume of new releases has been “patchier than normal” because of strikes by writers and actors last year, but Netflix said the cadence of new TV and film releases is picking up and expected to normalize in 2025. The fourth season of the hit show “Emily in Paris” premiered during the third quarter, as did original shows such as “Nobody Wants This,” the limited series “The Perfect Couple” and the movie “Beverly Hills Cop: Axel F,” a remake of the 1980s franchise starring Eddie Murphy. All helped to drive viewership.

Netflix’s rate of customer defections is the lowest in the industry, according to subscription analytics firm Antenna. Netflix said engagement—a measure of member contentment—remains healthy, with viewing hours per paying member increasing year-over-year.

Like other streaming services, Netflix has increasingly bundled its service with rivals and distributors to attract new customers. On Thursday, satellite provider Dish said it was offering the ad-free tier of the streaming service for no additional cost to Dish TV subscribers as part of its offering for two years.

Free cash flow grew to $2.19 billion for the quarter, from $1.89 billion a year earlier. The company’s operating margin rose to 29.6% from 22.4%, higher than the 28.1% Netflix projected.

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A scene from the limited series ‘Nobody Wants This.’ Photo: Hopper Stone/Netflix/Everett Collection

Write to Jessica Toonkel at jessica.toonkel@wsj.com

Corrections & Amplifications
Netflix ended the quarter with 282.7 million subscribers globally. An earlier version of this article incorrectly stated it had 282.7 subscribers. (Corrected on Oct. 17)

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Appeared in the October 18, 2024, print edition as 'Netflix’s Push for Profit Pays Off Even as Subscriber Growth Slows'.

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