Netflix Announces Price Increases Following Remarkable Surge in Subscribers.

Netflix Inc. is increasing its subscription rates for select customers in the United States, United Kingdom, and France following its most successful quarter in terms of subscriber growth in recent years. This move reflects the company’s confidence in its future prospects, even as competing streaming services continue to incur losses.

The world’s leading paid streaming service announced on Wednesday that it welcomed 8.76 million new subscribers during the third quarter, significantly surpassing analysts’ expectations and expanding its total subscriber count to 247.2 million. This exceptional performance was attributed to a compelling content lineup and the company’s efforts to curtail password sharing.

Investors had expressed concerns that Netflix might experience a decline in subscribers if it implemented measures to require individuals sharing accounts to obtain their own subscriptions. However, the crackdown on password sharing has instead resulted in a surge of new customers, with only a minor uptick in cancellations. As a result, Netflix is poised to acquire more than 20 million new subscribers this year, a substantial increase from the fewer than 9 million added in 2022.

 

Following the release of its results, Netflix’s shares surged by as much as 11% to reach $382.90 during after-hours trading. This brought their year-to-date increase to over 17%, outpacing the 12% gain of the S&P 500 Index through the close of regular trading on Wednesday.

The successful implementation of the paid sharing feature, allowing customers to purchase additional access for friends or family, has empowered Netflix to enact price increases in some of its major markets.

Effective immediately, Netflix is raising the price of its premium plan by $3 to $23 in the United States and the cost of its basic plan by $2 to $12, while maintaining the pricing for two other plans. Similar adjustments are being made in the United Kingdom and France, two other significant markets.

Netflix experienced its most substantial growth in the third quarter in the Europe, Middle East, and Africa region, where it added nearly 4 million customers. The average revenue generated per customer has remained relatively stable over the past year.

For the current quarter, Netflix anticipates generating $8.69 billion in revenue and earnings of $2.15 per share, slightly below the expectations of Wall Street analysts. The company stated that subscriber additions in the upcoming quarter are projected to be similar to those in the just-concluded quarter, with a variation of a few million.

 

Netflix has undertaken a couple of significant initiatives as part of its efforts to rekindle growth following a somewhat lackluster year or two. One such endeavor involves a firm stance against password sharing, while the company has also introduced an ad-supported version of its streaming services in 12 different markets. Interestingly, approximately 30% of new customers in those markets chose to opt for ad-supported plans in the last quarter, according to the company’s report.

In contrast to some of its streaming peers grappling with challenges in their streaming operations, Netflix has rebounded strongly. Competitors like Walt Disney Co., Warner Bros Discovery Inc., and Paramount Global have resorted to cost-cutting measures and workforce reductions to enhance their financial performance. These companies have invested vast sums in new streaming services as replacements for their declining linear TV networks. However, many of these newer streaming platforms are operating at a loss.

Conversely, Netflix has reported third-quarter revenue and profits that not only met but exceeded Wall Street’s expectations. Earnings per share climbed to $3.73, surpassing the estimated $3.56, while revenue grew by 7.8% to reach $8.54 billion, slightly ahead of forecasts.

The company’s cash flow also received a boost from the labor stoppage in Hollywood. Netflix’s management is now anticipating $6.5 billion in free cash flow for the current year, an improvement from the previous forecast of at least $5 billion. This revision includes a reduction of approximately $1 billion in content spending due to the impact of strikes in the industry.

 

The labor stoppage has had minimal impact on Netflix’s release schedule as many of its programs were already in production or completed. During this period, the company unveiled new seasons of popular series like Virgin River and Heartstopper, and it achieved significant success with new content, including the manga adaptation One Piece.

Notably, Netflix’s standout performer for the quarter was not an original production. The series “Suits,” initially aired on the USA Network, emerged as the most-watched program on streaming platforms throughout the summer, primarily due to its availability on Netflix. Additionally, the company recently revealed a new agreement to distribute animated films produced by David Ellison’s Skydance Media.

In a message to shareholders, Netflix expressed its commitment to building a robust and sustainable streaming business, emphasizing the importance of discipline and a long-term focus in achieving this goal.