Netflix, the global streaming giant, reported an impressive surge in its third-quarter subscriber numbers, adding nearly 9 million new users, while simultaneously unveiling plans to raise subscription prices in the United States, United Kingdom, and France. These announcements sparked a significant uptick in the company’s stock during after-hours trading on Wednesday.
Effective immediately, Netflix has increased the cost of its Basic and Premium subscription plans in the United States to $11.99 and $22.99, respectively, up from the previous rates of $9.99 and $19.99. The $6.99 ad-supported plan and the $15.49 Standard plan will remain unchanged.
In a statement, the company justified the price hike, stating, “Our starting price is extremely competitive with other streamers and at $6.99 per month in the US, for example, it’s much less than the average price of a single movie ticket.” This marks the first price increase since March 2022. As a result of these developments, Netflix’s stock price surged by over 12% in after-hours trading.
Growth Strategies Proved Right
In terms of financial performance, Netflix reported a revenue of $8.54 billion for the third quarter, slightly surpassing the company’s guidance of $8.52 billion, reflecting an 8% increase compared to the same period in the previous year. The company’s growth initiatives, including its crackdown on password sharing and the introduction of an ad-supported offering, contributed to this positive outcome.
Looking ahead to the fourth quarter, Netflix provided guidance of $8.69 billion in revenue, slightly below the consensus expectation of $8.76 billion. In terms of earnings per share (EPS), the company outperformed, reporting an EPS of $3.73, exceeding the consensus estimate of $3.49. This compares favorably to the $3.10 EPS reported in the same quarter the previous year.
Netflix considers raising price of ad-free tier
Regarding its advertising efforts, Netflix disclosed that its ads plan continues to gain momentum, with a 70% quarter-over-quarter increase in membership, with 30% of users opting for the ad-supported tier in regions where it’s available. However, the company acknowledged that there is still work to be done to further expand this business.
Will it be Consistent?
The significant highlight of the quarter was the addition of 8.8 million new subscribers, surpassing expectations of 6.2 million. Netflix attributed this growth to the introduction of paid sharing, a strong and steady content library, and the ongoing global expansion of its streaming platform. For context, in Q3 2022, Netflix had added only 2.41 million paying users.
Netflix expects the fourth quarter’s net subscriber additions to be in line with the results of the third quarter. However, despite the surge in paying users, the company struggled to increase the average revenue per membership (ARM), which decreased by 1% year over year, a trend attributed to various factors, including a higher percentage of membership growth from lower ARM countries and limited price increases over the past 18 months.
