What Happened: Shares of streaming video giant Netflix (NASDAQ: NASDAQ:NFLX) jumped 10% in the after-market session after company reported its Q3 2023 earnings. It was a strong quarter, with Netflix posting net streaming additions (essentially its paying subscribers) that beat expectations across all geographies (8.8 million net adds versus Wall Street estimates of 6.0 million). This increase was driven by new releases like One Piece and the continuation of existing hits such as The Witcher. There is probably some extra enthusiasm around this quarter's higher-than-expected numbers since Netflix rolled out paid sharing earlier this summer, which made investors skittish about whether subscribers would leave. On the other hand, its Q4 revenue guidance was below expectations, but the company bullishly raised its full-year outlook for both operating margin and free cash flow. Netflix also bought back $2.5 billion of its shares outstanding this quarter, well above the $1+ billion in buybacks for the first six months. With a fresh new buyback authorization and a higher free cash flow outlook, repurchase activity could remain strong (a tailwind to the company's stock price). Overall, the results weren't perfect but still quite strong, especially amid fears about what the paid sharing development could do to churn. Given the speed at which sentiment has shifted bearish this year, we are not overly surprised by the market's positive reaction.
Is now the time to buy Netflix? Find out by reading the original article on StockStory.
What is the market telling us: Netflix's shares are very volatile and over the last year have had 13 moves greater than 5%. But moves this big are very rare even for Netflix and that is indicating to us that this news had a significant impact on the market's perception of the business. The biggest move we wrote about over the last year was 6 months ago, when the company dropped 12.5% on the news that reported slightly weaker-than-expected sales for the first quarter. In addition, it guided to weaker sales and operating profits for the next quarter vs. Consensus analyst expectations. The company also moved the wider rollout of its paid-sharing feature from late Q1 to Q2 (the revenue impact will come in Q3). The feature is intended to reduce password sharing, and analysts view it as a potential revenue tailwind.
Netflix is up 35.5% since the beginning of the year, but at $399.60 per share it is still trading 16.3% below its 52-week high of $477.59 from July 2023. Investors who bought $1,000 worth of Netflix's shares 5 years ago would now be looking at an investment worth $1.20 thousand.
