Despite increased competition in the streaming entertainment industry, Netflix reports that it added 4.4 million paid net additions during the second quarter, compared to 1.5 million in the second quarter of 2021 and 2.2 million in the third quarter of 2020. The company projected 3.5 million paid net additions for Q3 2021. The largest segment of growth for the quarter came from the Asia-Pacific region. The streaming service also reports total revenue of $7.5 billion, a 16.3% increase year.
“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,” said Netflix yesterday in a letter to shareholders.
Among the reasons for Netflix’s third quarter success are the September 17 release of Squid Game, the streaming platform’s most popular TV series to date.
Quarterly highlights
Other highlights for the quarter include the following:
- Total global streaming paid memberships have grown to 213.6 million, representing 9.4% growth year-over-year.
- Operating income was $1.8 million, compared to $1.3 million in Q3 2020.
- Operating margin was 23.5%, ahead of forecast, compared to 20.4% in Q3 2020.
- Net income was $1.4 billion, or $3.19 diluted earnings per share, compared to $790 million, or $1.74 diluted earnings per share in Q3 2020.
Fourth quarter forecast
Netflix is forecasting the following for the fourth quarter of 2021:
- Total revenue of $7.7 billion, representing 16.1% growth
- Operating income of $500 million and operating margin of 6.5%
- Net income of $365 million, or $0.80 diluted earnings per share
- Total global streaming paid memberships of 222.1 million, representing 9% growth, including 8.5% paid net additions
Content highlights
In its shareholder letter, Netflix noted that its programming strategy is to provide its members with a wide range of high quality content that attracts audiences in large numbers. During the third quarter, season five of La Casa de Papel drew 69 million and season three of Sex Education drew 55 million member households in the first four weeks.
Even more impressive is the September 17, 2021 release of Squid Game, a nine-episode Korean horror show, that has become the streaming platform’s biggest TV show ever. The show attracted 142 million member households around the world in its first four weeks. If you haven’t heard about Squid Game, the premise is disturbing, but it has captured the attention of more than half of Netflix’s membership. View the official trailer on YouTube.
“The breadth of Squid Game’s popularity is truly amazing; this show has been ranked as our #1 program in 94 countries (including the US). 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. Demand for consumer products to celebrate the fandom for Squid Game is high and those items are on their way to retail now,” Netflix said.
Starting later this year, Netflix will transition its tracking to the number of hours specific titles are viewed rather than the number of accounts that watch a particular program.
“We think engagement as measured by hours viewed is a slightly better indicator of the overall success of our titles and member satisfaction. It also matches how outside services measure TV viewing and gives proper credit to rewatching,” explained Netflix.
Content coming soon
During the fourth quarter, Netflix has a slate of blockbuster material to share, including new seasons of The Witcher, You, Tiger King and Cobra Kai and the final season of La Casa de Papel. New movies include Red Notice with Dwayne Johnson, Don’t Look Up starring Leonardo DiCaprio and an all-star cast, The Harder They Fall, Army of Thieves and The Unforgivable.
“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,” said Netflix.
Other quarterly highlights
During the third quarter, Netflix announced its acquisition of the Roald Dahl Story Company for $686 million. Though the transaction is not yet complete, this deal expands on the streamer’s partnership with the company, allowing Netflix to tell beloved stories like Charlie and the Chocolate Factory, Matilda, James and the Giant Peach and others. The company is also focusing on its video game business which it plans to launch in 2022.
As part of that strategy, Netflix acquired Night School Studio best known for its game OXENFREE. Video games will not have ads or in-app purchases, and they will be included as part of a Netflix subscription.
The competition
With a growing streaming industry and cable and broadcast TV, Netflix still has a relatively small market share and it competes for attention and eyeballs with social media, video games and other types of entertainment.
“We are still quite small, with a lot of opportunity for growth; in our largest and most penetrated market, according to Nielsen, we are still less than 10% of US television screen time. Our approach as always is to improve our service as quickly as we can so that we can earn a greater share of people’s time,” Netflix said.
Insider Take
It is hard to imagine that, a year after huge membership gains during the pandemic, that Netflix membership continues to grow. Yes, growth has slowed, but with nearly 214 million subscribers, it is only natural for growth to level off at some point. The fact that the company’s membership and revenue continue to grow is a testament to both the exceptional user experience and the stellar content the company consistently offers. The addition of video games and retail sales through the Netflix shop and Walmart retail hub will allow the company to diversify revenue and to ensure its continued growth.
