Netflix’s shares experienced a significant surge after the closing bell as the streaming giant reported robust subscriber growth, partly driven by its crackdown on password sharing and the introduction of a new ad-supported tier.
During the quarter, Netflix added 8.76 million global subscribers, surpassing Wall Street’s expectations of 5.49 million, according to Street Account estimates. This marked the largest quarterly net addition of subscribers for the company since the second quarter of 2020 when Covid restrictions prompted more people to stay at home.
Here are the key financial results:
- Earnings: $3.73 per share (vs. $3.49 per share expected, according to LSEG, formerly known as Refinitiv)
- Revenue: $8.54 billion (in line with expectations at $8.54 billion, according to LSEG)
- Total memberships: 247.15 million (vs. 243.88 million expected, according to Street Account)
Netflix also revealed that its ad-supported plan membership grew by nearly 70% quarter-over-quarter. However, the company did not disclose the exact percentage of its user base subscribed to this tier.
This performance reinforces Netflix’s position as the dominant player in the streaming world, while competitors continue to strive for profitability.
Netflix’s pricing power remains evident as it keeps the ad-supported tier priced at $6.99 per month in the U.S., while its basic and premium services will experience price hikes. The basic plan will now cost $11.99 (up from $9.99), and the premium plan will be $22.99 per month (up from $19.99). The standard plan will maintain its current price at $15.49 per month.
These price increases are part of Netflix’s efforts to improve profitability and address rising production costs.
In addition to these challenges, Netflix has agreed to higher wages and monetary benefits based on streaming popularity as part of its new deal with Hollywood’s writers. The negotiations with striking actors are ongoing, and it is expected that content creation costs will rise further when a new contract is finalized.
Despite optimism in recent negotiations with the Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA), talks stalled when the guild presented new demands unrelated to viewership or success, such as a per-subscriber levy.
Netflix expects fourth-quarter revenue to increase by 11% to reach $8.69 billion, slightly below Wall Street’s expectation of $8.77 billion. The company anticipates that net subscriber additions will be similar to the third quarter.
Furthermore, Netflix warned that the strength of the U.S. dollar in recent months would have an approximate $200 million negative impact on fourth-quarter revenue.
Regarding profitability, Netflix projects that its full-year 2023 operating margin will be around 20%, at the high end of its previous forecast range of 18% to 20%. It also anticipates that full-year 2024 will see operating margins of 22% to 23%.
The company addressed shareholder concerns about its executive compensation model, stating that it plans to make “substantial changes” in 2024 to adopt a more conventional compensation model while continuing to base compensation on performance.
In 2022, co-CEO Ted Sarandos and former co-CEO Reed Hastings each earned over $50 million. Hastings received most of his earnings in stock options, while Sarandos opted for a $20 million base salary and the remainder in stock.
After the appointment of Greg Peters as co-CEO and Hastings’ departure, Netflix implemented a salary cap of $3 million for executives. However, executives are still entitled to an annual target bonus and additional stock rewards.