Video streaming giant Netflix Inc. (NASDAQ:NFLX) has just reported third quarter 2021 earnings, yet an otherwise successful quarter in terms of content and subscriber growth has failed to lift the shares of one of the most popular internet companies on the planet.

Netflix reported Q3 GAAP EPS of $3.19, 83% higher than Q3 2020 EPS and $0.63 better than the Wall Street consensus while revenue of $7.48B marked a +16.1% Y/Y improvement and was in-line with the Wall Street consensus.Global streaming paid net additions came in at 4.38M, multiples better than the company’s 1.54M guidance while Global Streaming Paid Memberships of 213.56M beat the Wall Street consensus of 209.18M consensus. Netflix also provided mildy upbeat Q4 guidance as follows: Revenue of $7.71B vs. $7.68B consensus, EPS of $0.80 vs. $1.13 consensus, Global Streaming Paid Memberships: 222.06M vs. 221.2M consensus, Global streaming paid net additions 8.5M vs. 8.32M consensus.

The guidance means that Netflix is set to finish the year with at least 222.06 million global streaming paid memberships.

A few days earlier, Netflix revealed that it expected a $900M windfall from its latest megahit Squid Game.

The nine-episode horror-thriller has shot up to pole position in several countries including the U.S. since its September 17 debut. The South Korean show involves heavily indebted people who compete in children's games for a chance to win big cash prizes. Indeed, Netflix reported that more than 130M people have watched at least two minutes of Squid Game in the show's first 23 days, easily surpassing the 82M Netflix record set by Bridgerton. The company also estimates that 89% of people who started the show watched at least 75 minutes (more than one episode) and 66% of viewers, or 87M people, have finished the series in the first 23 days.

Netflix subscribers have spent at least 1.4B hours watching the show, more than double the total hours watched for Bridgerton.

Muted response

Netflix says that its latest performance has been boosted by the wildly successful Squid Game, which attracted 142 million households during the first four weeks making it the company's most-successful show ever. A cross-section of Wall Street analysts has acknowledged that the reception of Squid Game not only demonstrates Netflix’s ability to appeal to international viewers but also its ability to draw North American subscribers to programs they might not have originally considered watching.

Yet, Netflix’s latest quarterly report, that has forecast at least 8.5M new paid subscribers in the final quarter of the year, has only elicited muted response on Wall Street, climbing about 1% after the earnings call. NFLX shares have gained 15.6% in the year-to-date, trailing the 20.7% climb by the S&P 500 mainly due to slowdown in subscriber growth amid Covid choppiness.

Nevertheless, Morgan Stanley analyst Benjamin Swinburne has raised his price target on Netflix's stock to $700 a share from $675 and maintained his outperform rating on the stock saying:

‘‘Netflix's subscriber outlook builds off a better than expected third quarter and reinforces the investment case for Netflix shares as it begins to exit the Covid-related impacts to the business over the past 18 months."

Stifel analyst Scott Devitt has maintained his buy rating on Netflix's shares and raised his price target on the company's stock to $690 a share from $650 saying:

"The success of Squid Game and other high profile international titles further highlights the transferability of Netflix's original content across regions." 

Cowen analyst John Blackledge said the Netflix’s new viewership reporting methodology is "a more effective measuring tool, addressing longstanding criticism of the current method accounting for those that only partially watched a program." 

Netflix has announced that it will change how it reports viewership by publishing how many hours its programs have been watched instead of simply tracking the number of accounts watching its shows. Blackledge has maintained his outperform rating on NFLX shares, but raised his price target to $750 from $650.

Finally, despite predicting rosy subscriber growth numbers ahead, Bank of America analyst Nat Schindler says that Netflix might be underestimating its potential growth "given this is the first time Netflix will be launching so many highly anticipated titles in the same quarter."

Netflix is reportedly lining up a series of shows to be released in the fourth quarter including Red Notice, Don't Look Up, and new seasons of hit series Tiger King and Cobra Kai.

Unchartered territory

Indeed, Netflix co-CEO Reed Hastings has noted the company’s latest bump of content presents a new growth runway:

"We're in uncharted territory–we have so much content," Hastings has told analysts.

Co-CEO and content chief Ted Sarandos has buttressed the point:

"Around the world, non-English content viewing has grown three times since we started making content in 2008. The best content has always been competitive…the one thing we can promise international creators is the possibility of having a Squid Game experience." Sarandos has pointed out that the Korean star of the show went from 400,000 social media followers to 15 million in just five days.

If Netflix can deliver on its Q4 guidance (for 8.5 million net adds), the company will essentially be on par with its trailing 24-month net adds clip of 55 million that it has maintained over the past few years, proving that this company still has plenty of upside even after recording robust growth over a long stretch.