Netflix Raises Prices After Password Sharing Crackdown Leads to Surge in Subscribers; Pre-market Stock Rally Follows

Analysts Notebook wrote a column · Oct 19, 2023 19:28

$Netflix (NFLX.US)$'s revenue for the last quarter was $8.54 billion, which was fueled by an increase in its membership base that exceeded expectations. The company also reported a growth of almost 70% in the adoption of its advertising tier plans compared to the previous quarter. The earnings per share for the quarter were $3.73.

The company's shares are up over 13% in pre-market trading.

Netflix Raises Prices After Password Sharing Crackdown Leads to Surge in Subscribers; Pre-market Stock Rally Follows

Netflix outperformed analysts' expectations by adding 8.76 million customers in Q3, bringing its total subscriber base to 247.2 million. The world's top paid-streaming service attributed this growth to a strong programming lineup and its successful crackdown on password sharing, which did not lead to a significant increase in cancellations. Despite investor concerns that the crackdown might hurt Netflix's customer base, the company is now projected to add more than 20 million customers in 2023, a substantial increase from fewer than 9 million in 2022.

The password crackdown will continue

We're incredibly pleased with how it's been going," co-Chief Executive Officer Greg Peters said in a videotaped interview released after results came out.

Netflix expects to continue seeing the benefits of its password crackdown over the next few quarters as it has been implemented in stages. The crackdown on password sharing is one of the major initiatives that Netflix has undertaken to revive its growth after a period of slow growth. The company has also introduced an advertising-supported version of its streaming services across 12 markets, with about 30% of new customers in those markets opting for ads in the last quarter.

New investments in gaming and sports content to draw new subscribers

On the earnings call, co-CEOs Sarandos and Greg Peters also stressed Netflix's investments in newer business areas, like gaming and sports content, to draw new subscribers.

Games is a huge entertainment opportunity," Peters said. "From a strategic perspective, we believe we can build games into a strong content category, leveraging our current films and series."

Raising prices along with its competition

Netflix's biggest competitors, including $Disney (DIS.US)$'s Disney+, Hulu, and Max, have all raised their prices recently as Hollywood studios demand more from streaming services for their TV shows and movies, amid rising production costs. Meanwhile, consumer demand for streaming services has slowed down since the pandemic, cutting into streamers' revenue growth.

In response, Netflix plans to offer an even wider range of price points for its subscriptions to grow its subscriber base, while also pushing its lower-priced ad tier to keep prices low for consumers but charge more to advertisers over time. Despite the challenges facing the industry, Netflix remains one of the few profitable streaming services, and investors are demanding that the company continues to grow its earnings.

More price offerings could allow entertainment fans from around the world that have different needs to be able to access the great story-telling that our creative partners are doing at a price-point that works for them," Peters said.

Source: Bloomberg, Yahoo Finance, ABC7Chicago

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