Netflix (NFLX) disclosed a significant surge in its third-quarter subscriber count, adding a notable 8.8 million members, comfortably surpassing the anticipated 6.2 million. This is a noteworthy jump from Q3 2022 when only 2.41 million new users signed up. The streaming behemoth now touts an impressive total of 247 million paid global subscribers. The price changes, effective from Wednesday, are:
- Basic plan: From $9.99 to $11.99
- Premium plan: From $19.99 to $22.99
It’s worth noting that the $6.99 ad-supported plan and the $15.49 Standard plan will remain unchanged.
The company remarked, “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 is the second price hike by Netflix in 2023 after its previous increment in January 2022.
Financial Highlights and Stock Performance
- Q3 Revenue: $8.54 billion, slightly above the projected $8.52 billion, marking an approximately 8% YoY growth.
- Earnings Per Share (EPS): Reported at $3.73, surpassing the consensus estimate of $3.49.
- Stock Movement: Netflix shares soared over 12% in after-hours trading, reflecting investor confidence.
Factors Fueling Growth
Netflix attributed its growth to several initiatives:
- Password Sharing Crackdown: Implemented in late May in the US and subsequently rolled out globally. Rather than leading to mass cancellations, it seems to have encouraged users to convert into full-paying subscribers.
- Advertising Plan: The adoption rate has grown substantially with a 70% increase in memberships QoQ. Almost 30% of users opted for the ad-supported plan where available.
However, despite these positive metrics, Average Revenue Per Membership (ARM) saw a decline of 1% YoY. This was attributed to various reasons, including a surge in memberships from countries with lower ARMs, limited price revisions over the past 18 months, and some changes in the plan mix.
Other Noteworthy Financial Metrics
- Operating Margin: Achieved 22.4%, slightly above the company’s forecast of 22.2%.
- Free Cash Flow: Reported at $1.89 billion, significantly outperforming the consensus estimate of $1.27 billion.
Hollywood Strikes Impact
Netflix addressed the twin strikes that hit Hollywood – the writers and actors strike. These labor disputes have undoubtedly challenged the entertainment industry. While an agreement with the Writers Guild of America (WGA) has been reached, discussions with SAG-AFTRA (representing the actors) are still ongoing. Co-CEO Ted Sarandos emphasized the company’s commitment to resolving these issues to ensure content production is back on track.
Given these production halts, Netflix’s content expenditure for the year is expected to touch $13 billion. The company aims to raise this investment to $17 billion in the coming year, contingent upon the timely resolution of the SAG strike.
Read more about the ongoing Hollywood strikes here.
Upcoming Initiatives
In a bid to diversify its offerings, Netflix has announced the premiere of “The Netflix Cup,” a celebrity golf tournament set to stream live from Wynn Golf Club in Las Vegas on Nov. 14. This event will feature notable athletes from shows like “Formula 1: Drive to Survive” and “Full Swing.”
Furthermore, the company’s executives, co-CEOs Sarandos and Greg Peters, underscored their investments in emerging sectors like gaming, aiming to leverage their current films and series portfolio. Peters noted the vast potential in gaming, terming it a “huge entertainment opportunity.”
Executive Compensation
Post the shareholder disapproval of a multi-million dollar executive compensation package earlier this summer, Netflix has promised “substantial changes for 2024” in its executive remuneration structure. Last year, the company allocated an estimated $166 million towards executive pay.
Competitive Landscape
As the streaming wars intensify, Netflix isn’t alone in adjusting its pricing. Competitors like Disney+ and Max, owned by CNN’s parent company Warner Bros. Discovery, have also recently revised their subscription fees. While Disney+ implemented two price hikes this year, Max introduced its first-ever price increment in January 2023. This trend underscores the pressures of escalating production costs and the ever-growing demand from Hollywood studios for a larger slice of the pie.
Conclusion
Netflix’s strong Q3 performance and its strategic initiatives position it favorably in the streaming market, even as challenges from industry strikes and competition persist. The company’s commitment to diversifying its offerings and expanding its global reach is evident, making it a force to reckon with in the entertainment sector in the forthcoming years.
