Aside from re-accelerated membership growth and a positive outlook, Netflix impressed shareholders with a significant improvement of its operating margin – a metric that used to be a point of concern for the company as it invested billions upon billions into building its content library. As Netflix’s business continues to scale – the streaming giant ended last quarter with more than 280 million paid subscribers – its margins continue to improve, because the company is able to balance its investments against a larger revenue base.
In the third quarter of 2024, Netflix’s operating margin, i.e. the share of revenue left after subtracting cost of revenue as well as all operational and overhead expenses, jumped 8 percentage points to almost 30 percent, putting the company on track to reach an operating margin of 27 percent for the full year. That’s up from 21 percent in 2023 and the continuation of a trend long-term trend as our chart shows.
“We see plenty of room to increase our margins over the long term. And we feel great about what we're delivering in '24,” CFO Spencer Adam Neumann said in Thursday’s earnings call. “We believe we build a stronger and more lasting business by gradually increasing margins as we grow. The amount of margin growth each year, it will bounce around a bit based on the strategic opportunities in a given year, FX moves and things like that, but we'll aim to increase each year.” Looking forward, Neumann sees room to grow profit margins “for many, many years to come,” a statement that should be music to the ears of Netflix’s shareholder.
