Published , by Ozzie Mejia
Published , by Ozzie Mejia
Netflix (NFLX) has reported in with its Q3 2022 earnings report. On Tuesday afternoon, the streaming giant reported that it has exceeded both its revenue and EPS expectations on the strength of increased year-over-year profit. It's a big victory for the company, which appears to have overachieved in comparison to previous projections.
Netflix (NFLX) reported an EPS of $3.10, which is far more than the $2.11 that was expected. Overall, the company reported a $7.926 billion revenue for Q3 2022, which is up from the 7.483 billion reported in Q3 2021.
The following was posted to the Netflix Investors page:
Our revenue growth forecast is driven by our expectation for 4.5m paid net adds (vs. 8.3m in Q4’21) and ARM growth of 6% year-over-year, excluding F/X. Our paid net adds forecast assumes that we experience our usual seasonality as well as the impact of a strong content slate, counterbalanced by macroeconomic weakness which leads to less-than-normal visibility. While we’re very optimistic about our new advertising business, we don’t expect a material contribution in Q4’22 as we’re launching our Basic with Ads plan intra-quarter and anticipate growing our membership in that plan gradually over time. Our aim is to give our prospective new members more choice - not switch members off their current plans. Members who don’t want to change will remain on their current plan, without ads, at the current price.
We forecast Q4 '22 operating margin of 4% vs. 8% in the year ago period. The fourth quarter is typically our lowest operating margin quarter of the year as it’s usually our largest quarter in terms of content and marketing spend. In addition, the aforementioned F/X impact has a high flow through to operating income (~75%-80% of the revenue impact) as most of our costs are in US dollars. Excluding the year-over-year impact of F/X, our Q4 '22 operating margin forecast would be 10% vs. 8% in Q4 '21.
The US dollar has strengthened against most other currencies at a historic rate this year. Based on our YTD actuals and Q4 guidance, we estimate that this appreciation since January 1, 2022 will negatively impact our full year 2022 revenue and operating income by ~$1 billion and $0.8 billion, respectively.
With a strengthening US dollar and a new Basic With Ads plan on its way, Netflix is forecasting a conservative $7.776 billion for next quarter, though it will likely exceed that number. In its letter to investors, Netflix observed that it appears to have turned the corner after a slow first half of the year and expects growth from this point forward, citing specifically its engagement numbers compared to Hulu, Amazon, and Disney+.
We'll continue to analyze the Q3 2022 Netflix earnings throughout the day. Keep it on Shacknews for the latest updates.