Netflix Q3 2022 Earnings Preview: Subscriber Growth and Revenue Trends Amid Rising Competition

Focus on Netflix's global paid streaming subscriber numbers this quarter.

Highlights to Watch

• Analysts forecast earnings per share (EPS) of $2.12, down from $3.19 in Q3 2021.
• Year-over-year growth in global paid streaming memberships is projected to be the slowest in over six years.
• Revenue growth is expected to hit its lowest rate since 2016 amid fierce competition in the streaming market.

Netflix Inc. (NFLX), the world's leading streaming service by subscriber count, is anticipated to report its steepest profit decline in more than six years for Q3 2022. This drop is driven by slower subscriber acquisition and increased cancellations, resulting in decelerated revenue growth.

According to Visible Alpha estimates, Netflix's EPS may fall by over one-third year-over-year to $2.12, while revenue is expected to increase modestly by 4.7% to $7.8 billion. This would mark the second earnings decline within three quarters and the slowest revenue growth since 2016. The earnings report is scheduled for release after market close on October 18.

Based in Los Gatos, California, Netflix faces mounting pressure to sustain growth amid rising competition and changes in consumer behavior, such as the return to office environments leading to higher cancellation rates. To counter these challenges, Netflix has introduced more affordable, ad-supported subscription options, a shift from its traditional ad-free model.

Investors will closely monitor Netflix's global paid streaming memberships, a critical indicator of user engagement and market share. With multiple streaming services vying for viewers, subscriber growth is expected to be the slowest in over six years.

Over the past year, Netflix shares have dropped 63.6%, significantly underperforming the S&P 500's 19.3% decline as of October 16.

Netflix Earnings Performance Overview

During the COVID-19 pandemic in 2020 and 2021, Netflix experienced strong annual EPS growth as global lockdowns boosted streaming demand. However, quarterly profit growth began to slow by late 2021, dropping to 11.8% in Q4 2021 and declining 5.9% in Q1 2022.

Revenue growth, which exceeded 20% annually from 2018 to 2020, slowed to 8.6% in Q2 2022. The anticipated 4.7% growth in Q3 2022 represents the slowest pace since early 2016.

Source: Visible Alpha

Critical Metric: Global Paid Streaming Memberships

Netflix’s global paid streaming memberships reflect the total number of subscribers worldwide who pay for access to its streaming content. This metric remains the cornerstone of Netflix’s revenue model.

As the streaming landscape becomes increasingly competitive, Netflix faces challenges from Apple TV+, Disney+, Amazon Prime Video, HBO Max, and others. To attract and retain subscribers, Netflix is investing heavily in new content.

Subscriber growth has decelerated over the past two years. From FY 2018 to FY 2020, quarterly subscriber increases ranged between 20% and 26%. Growth slowed to 13.6% in Q1 2021 and further to 5.5% last quarter. Analysts now expect growth to slow even more, with a projected 3.8% increase in paid subscribers for Q3 2022.

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