Oct 18, 2023 - Economy

Netflix shares pop on earnings beat, advertising momentum

Photo by Jakub Porzycki/NurPhoto via Getty Images

Netflix's stock soared more than 12% in after-hours trading Wednesday after the company said it beat Wall Street expectations on profit, and added more subscribers than expected. Its quarterly revenue was in-line with projections.

Why it matters: Better-than-expected subscriber growth suggests the company's efforts to crack down on password-sharing and offer a cheaper ad-tier are working.

Details: Netflix added 8.76 million subscribers globally last quarter, roughly 3 million more than Wall Street expected.

  • The company said its ad tier membership was up "almost 70% quarter-over-quarter," but it did not specify how many ad-supported subscribers it actually has. It did disclose that roughly 30% of sign-ups in the 12 countries where its ads plan is available are to the ads tier.
  • For comparison, Hulu has said in the past that roughly 70% of its subscribers are on its ad-supported tier, which means there's a lot of room for Netflix to grow its ad-supported membership in the U.S.

Yes, but: A recent shakeup to Netflix's ads leadership team, less than a year after debuting its ad-supported tier, suggests the company is still working to find its footing on Madison Avenue.

  • The company announced this week a slew of new ad formats for marketers, including the ability for brands to sponsor its live events, like its new live golf match between Formula One drivers and PGA Tour players that it's calling "The Netflix Cup."

Be smart: For years, Netflix said it wasn't interested in getting into live sports, but the success of certain shows, like its "Formula 1: Drive to Survive" series, showed the opportunity in sports content for drawing subscribers.

  • In a letter to shareholders, the company said it's "having great success" with what it called "sports shoulder programming," or programming about the drama of sport.

Between the lines: In addition to ads and password crackdowns, Netflix also cited price rises as another opportunity for monetization growth.

  • The firm announced that beginning Wednesday, it will charge more for its basic and premium plans in the U.S., U.K. and France.
  • Basic plans will now cost $11.99, up from $9.99. Premium plans will now cost $22.99, up from $19.99. Its ad-supported plan ($6.99) and its standard plan ($15.49) will remain the same.

The big picture: It's been a brutal year for streaming companies, although Netflix has fared better than many of its peers.

  • Concerns about a sluggish ad market, subscription saturation and Hollywood labor issues impacting production have tempered Wall Street's expectations heading into earnings season.
  • Netflix's share price was up 85% from a year ago through early September, but fell roughly 20% from its September peak through Wednesday morning before earnings.

What to watch: Netflix projected strong profit growth for the fourth quarter, telling investors it expects an operating margin of 20% for the full year.

Go deeper ... Netflix's earnings over the past year:

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