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Netflix Third-Quarter Earnings Live Blog

Real Money's Eric Jhonsa covers Netflix's third-quarter earnings report and video interview with management.
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Netflix's stock is up 20% since the company posted its Q2 report in July, aided by rallying markets and enthusiasm about hit Korean drama Squid Game.

Bulls are hoping Squid Game's success will translate into strong subscriber figures when Netflix reports after the bell on Tuesday.

Currently, among analysts polled by FactSet, the consensus is for Netflix to report 3.78 million Q3 paid net subscriber adds -- a little better than Netflix's July guidance of 3.5 million -- and to guide for 8.41 million net adds for the seasonally big fourth quarter.

Netflix is also forecast to report third-quarter revenue of $7.48 billion (up 16% annually) and GAAP EPS of $2.56. However, its subscriber figures typically have a bigger impact on how its stock moves post-earnings than its revenue and EPS numbers.

Eric Jhonsa, RealMoney's tech columnist, will be live-blogging Netflix's Q3 shareholder letter, which is due after the bell on Tuesday, along with a "video interview" with management that's set to become available around 6 P.M. Eastern Time. Please refresh your browser for updates.

7:06 PM ET: That's a wrap for Netflix's video interview. Shares are currently down 1.3% after hours to $630.79 after Netflix reported 4.38M Q3 paid net adds (above a consensus of 3.78M and guidance of 3.5M) and guided for 8.5M Q4 paid net adds (above a consensus of 8.41M).

Netflix also reported 16% revenue growth and 7% ARPU growth, reiterated full-year guidance for roughly breakeven free cash flow, and said it would break out viewing hours for popular new originals going forward rather than the number of accounts watching them.

Thanks for joining us.

7:00 PM ET: Final question: What's each exec's favorite recent Netflix show or movie, not counting Squid Game?

Hastings chooses Maid. Peters goes with Chestnut Man, Neumann mentions Maid and Season 5 of La Casa de Papel. Sarandos also says La Casa de Papel. Wang chooses Season 3 of Sex Education.

6:58 PM ET: A question about where Netflix has room to optimize its operations, and one about what it can achieve by taking a tech company's approach to studio operations.

Peters: We're going from being a U.S. company with international ops to a truly global company. We're trying to figure out how to operate more effectively in that context. On the studio side, we're excited about leveraging our tech DNA to better serve creators and give them more resources.

6:55 PM ET: A question about Netflix's content spend. How much could it grow from a current annual level of ~$17B?

Neumann: (Laughing) Ted will always find ways to spend more on content. We still think it's early days. We're still a small % of TV viewing time. We're just getting started in gaming. Our international content efforts are growing. We have a long runway. There isn't a specific number we have, but we see a lot of room to grow across all our content categories.

Wang: We feel very confident about the next couple of years, given the trajectory of the business. I think we're going to feel our way along, while monitoring things like growth, engagement, etc.

Hastings: We're looking to entertain the world. If we can be the place the whole world goes to for most of their entertainment, spending will grow a lot. It'll take a couple decades to get there, but it would be "incredibly satisfying" if we could one day justify much bigger content budgets.

6:49 PM ET: A question about margins. How confident is Netflix about its ability to pursue its growth initiatives while maintaining its goal of 300bps annual op. margin improvement?

Neumann: We're guiding for 19% revenue growth this year. That's still pretty healthy. We'll work hard to keep growth around those levels. And we'll continue investing in our business while aiming to grow margins by 300bps annually on average over a multi-year timeframe.

6:45 PM ET: A question about Netflix's consumer product efforts.

Sarandos: I think consumer products are a great way to enhance our relationship with content and fans. They won't have a huge direct financial impact, but will strengthen our core business and help attract more fans.

6:43 PM ET: What have been Netflix's key learnings from its kids' content efforts?

Sarandos: We're still learning. The production cycle for some of these films can be 3-5 years. But we have a lot of great storytellers making their next projects at Netflix. You don't necessarily need this enormous machine to create great content for kids. I think we're on the right track. It's going to take a couple more years for it all to play out.

6:41 PM ET: A question about Netflix's plans for the IP obtained via its purchase of the Roald Dahl Story Company.

Sarandos: Our partnership with the company had been very successful. It made us conclude it make sense for the company to reside within Netflix. Creating stories for the world with richly-developed characters from James and the Giant Peach, Willie Wonka, etc. We've had a lot of creator interest related to this IP. We also think the IP will create value for our efforts in gaming, publishing and consumer products.

6:38 PM ET: A question about Netflix's purchase of game developer Night School Studio. Why was that a perfect fit?

Peters: There are a whole bunch of things that go into creating a great game. Engineering, storytelling, data, etc. We're very new to this and trying to learn quickly. We'll take a bunch of different production approaches with gaming just as we have with shows and movies. And internal game development teams will be part of this effort. Night School has done a great job of making story and narrative a central part of their gaming experience. That fits really well with what we do.

Peters and IR chief Spencer Wang add that Netflix isn't likely to go on a huge gaming acquisition spree, but will make opportunistic purchases. Neumann cautions that gaming is "a multi-year build" that's still in its early stages.

6:33 PM: A question about how tightly Netflix wants to control the IP for hit franchises. Gupta notes Roblox has Squid Game-related mini-games.

Peters: It's exciting to see something like Squid Game blow up in the cultural zeitgeist. There's no monopoly on that passion. If people are creating content on TikTok or Roblox, I think that's great.

6:31 PM ET: A follow-up question about mobile gaming. How is Netflix looking to differentiate?

Peters: By getting rid of things like ads and in-app purchases, we think we can create a more enjoyable experience. And our creators can focus on creating a great experience for consumers without worrying about such monetization issues. We also see an opportunity to tie original content experiences with gaming experiences. Over time, we'll try to bring those two worlds closer together. But it's something that will take years to implement.

Hastings: 3 years from now, if we have a hit like Squid Game, it could be accompanied by a gaming experience. A company like Disney is still ahead of us in terms of offering those kinds of integrated experience, but we're making progress. I'm excited to close that gap and hopefully surpass them in the next 3-5 years.

6:26 PM ET: A question about Netflix's nascent mobile gaming efforts.

Peters: It's very early. Our biggest focus so far has been making sure all our systems are working the way we want. We're looking to connect great content creators with our global audience the same way we have with shows and movies. Learning about how to best serve consumers here is a process that will take months and years.

6:23 PM ET: A question about Netflix's efforts to grow mobile engagement.

COO Greg Peters: The vast majority of our subs engage with us on mobile devices. We want to provide great mobile experiences, whether it's for full-length or shorter content.

6:22 PM ET: A question about Netflix's original film efforts. Why haven't we seen the same consistency in success with original films that we've seen with original shows?

Sarandos: Our original film efforts started a few years after our original show efforts. We've had 5 Oscar-nominated films. I doubt we'll have as much cultural buzz around our original films as our original shows. But the viewing numbers show they're very popular.

6:19 PM ET: A question about how hits like Squid Game can help Netflix win over more content creators.

Sarandos: Our ability to drive massive international viewing appeals a lot. The star of Squid Game went from 400K to 15M social media followers in 5 days. It's a testament to both the quality of our content and the ability of our delivery system to help people find content.

6:16 PM ET: A question about Squid Game's success.

Co-CEO/content chief Ted Sarandos: Squid Game was picked up a couple years ago by our Korea team, which did recognize it would be their biggest title this year. But we didn't expect it to be this big globally. How something can go viral is really hard to predict, but it's great when it happens. It's worth keeping in mind we've had other international shows that travelled well. The stories of the world increasingly come from anywhere in the world. Globally, non-English content viewing has grown 3x since 2008.

6:12 PM ET: How does Netflix feel about its ability to bring annual paid net adds back to the 27M-28M range?

Hastings: No one's really sure. Our global subscriber base is still pretty small relative to the # of pay-TV households that exist ex-China. Squid Game is incredible, but it's not like Ted (Sarandos) commissioned it. It was commissioned by one of our Korean leaders. It's a testament to the system that Ted built.

Neumann: We can't predict subscriber growth with certainty, but secular growth trends remain strong as long as we keep improving our service.

6:09 PM ET: Question about the expected impact of new content launches in Q4.

Neumann: We expect growth to accelerate as we get past the impact of reopenings and benefit more from new content. We have a lot of big launches scheduled.

Reed Hastings: What Spencer is saying is that we're in uncharted territory. We have so much new content coming.

6:06 PM: Question about the weakness seen in Latin America, where paid net adds totaled just 330K.

Neumann: Price hikes have had a short-term impact on growth. Also, Latin America is a relatively mature region for us. But we still have a long growth runway there.

6:04 PM ET: First question is about Netflix's Q3 subscriber adds.

CFO Spence Neumann: The business remained healthy throughout the quarter. Churn remained down. Viewing was down slightly relative to the year-ago period, but up a healthy amount relative to Q3 2019. And subscriber growth improved, aided by Squid Game and other content launches.

6:02 PM ET: The interview is up. Fidelity fund manager Nidhi Gupta is once more the interviewer.

5:57 PM ET: Netflix's stock is now down 0.9% after hours. As mentioned earlier, high pre-earnings expectations seem to be tempering the market's reaction to a generally solid Q3 shareholder letter.

5:56 PM ET: Here's the link to the Netflix IR YouTube page, for those looking to tune in.

5:54 PM ET: Hi. I'm back to cover Netflix's video interview, which should go up on YouTube in a few minutes.

4:58 PM ET: I'm taking a break, but will be back to cover Netflix's Q3 video interview, which is due to go up on YouTube around 6PM ET.

Shares are currently up fractionally to $640.50 after Netflix beat Q3 paid net add estimates and guided Q4 paid net adds slightly above consensus, while reporting 16% revenue growth and above-consensus EPS.

4:54 PM ET: Netflix also made a point of highlighting its ability to leverage its data/recommendations to drive mass viewing for older content that studios might be struggling to monetize.

"One example of our ability to surface relevant programming is Manifest, a TV series that aired on NBC for three seasons and was subsequently cancelled in June 2021. We added Manifest to our service in the US and Canada during the summer of 2021. In the UCAN region, 25m member households chose to watch this title in its first 28 days and we’ve ordered a fourth and final season given the popularity of the show."

4:47 PM ET: As usual, Netflix stresses that it believes it's competing against other entertainment options in general, rather than just paid streaming services, and that its share of total video viewing time remains low. The company shared the following Nielsen pie chart to help reinforce the latter point.

NFLX Q3 viewing share

4:43 PM ET: Netflix ended Q3 with $7.5B in cash and $15.5B in debt. Its streaming content obligations totaled $22.47B at quarter's end, up $603M Q/Q

4:41 PM ET: Echoing its comments about some past EPS beats, Netflix notes its Q3 EPS benefited from a $136M accounting gain related to the revaluation of euro-denominated debt. As noted previously, markets tend to pay far more attention to Netflix's subscriber figures than either its sales or EPS numbers.

4:37 PM ET: After spending $500M on buybacks in Q2, Netflix spent just $100M on them in Q3, repurchasing 200K shares in the process.

The company attributes its slower buyback pace to its M&A activity -- Q3 saw the $686M acquisition of the Roald Dahl Story Company, as well as the purchase of game developer Night School Studio.

4:33 PM ET: With production work ramping, Netflix's cash content spend totaled $4.7B in Q3. That's up from 4.4B in Q2 and $3B in Q3 2020.

4:31 PM ET: As was the case in Q2, Netflix's marketing spend, which was subdued in 2020 amid COVID lockdowns, rose strongly in Q3: It was up 21% Y/Y on a GAAP basis to $635.9M.

Technology and development (R&D) spend rose 24% to $563.9M. G&A spend rose 18% to $321.8M.

4:26 PM ET: Netflix's Q3 paid net add and ARPU growth by region. Asia-Pac accounted for roughly half of the quarter's net adds, with EMEA accounting for most of the rest. Constant currency ARPU growth was strongest in North America and Latin America.

NFLX Q3 by region

4:23 PM ET: Netflix's weekly paid net adds. Notice the spike seen in September around the time that Squid Game came out.

NFLX weekly adds Q3

4:21 PM ET: Paid subs were up 9% Y/Y. With the help of price hikes, ARPU rose 7% in dollars and 5% in constant currency.

4:18 PM ET: For context, Netflix ended Q3 with 213.56M paid subs globally.

4:16 PM ET: Regarding Squid Game, Netflix says 142M "member households" watched the show during its first 4 weeks of availability, making it Netflix's biggest show ever. Netflix previously disclosed that 87M households had watched Squid Game from start to finish in its first 23 days of availability.

4:14 PM ET: Going forward, Netflix plans to report viewing stats  for new originals based on the number of hours viewed rather than the number of accounts watching a title, arguing this approach provides a better read on viewing engagement and satisfaction. The company provided a table showing how the change impacts rankings for recent originals.

NFLX viewing stats

4:09 PM ET: Shares have pared their AH gains a little: They're now up 0.9% to $644.90. The report looks solid, but Netflix's stock had seen a decent run over the last two months.

4:07 PM ET: Netflix: "Assuming no new Covid waves or unforeseen events that result in large scale production shutdowns, we currently anticipate a more normalized content slate in 2022, with a greater number of originals in 2022 vs. 2021 and a release schedule that is more balanced over the course of the year, as compared to 2021."

4:07 PM ET: Netflix reiterates guidance for full-year free cash flow to be around breakeven. Q3 FCF was negative $106M, and the company also expects Q4 FCF to be negative amid higher content costs.

4:05 PM ET: Netflix: "After a lighter-than-normal content slate in Q1 and Q2 due to COVID-related production delays in 2020, we are seeing the positive effects of a stronger slate in the second half of the year...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."

4:04 PM ET: Here's the shareholder letter, for those interested.

4:03 PM ET: Q3 revenue of $7.48B (+16% Y/Y) is in-line. GAAP EPS of $3.19 is above a $2.56 consensus.

4:02 PM ET: Shares are up 2.2% after hours.

4:01 PM ET: The Q3 letter is out. Netflix reports 4.38M Q3 paid net adds, above a consensus of 3.78M. And it guides for 8.5M Q4 paid net adds, a little above an 8.41M consensus.

3:57 PM ET: Netflix's stock is up 18% YTD heading into its Q3 report, gains that leave the streaming giant sporting a $283B market cap.

3:55 PM ET: Netflix's Q3 letter should be out shortly after the market closes. The FactSet consensus is for 3.78M Q3 paid net adds and guidance for 8.41M Q4 paid net adds, but informal expectations might be a little higher in the wake of Squid Game's success.

3:54 PM ET: Hi, this is Eric Jhonsa. I'll be live-blogging Netflix's Q3 shareholder letter and earnings interview.