Netflix pops 12% as profit beats expectations, ad-tier subscriptions rise

LOS ANGELES — Netflix shares surged after the closing bell Wednesday as the company reported a boost in subscriber growth driven by a password-sharing crackdown efforts and interest in its new ad-supported tier.

The streaming giant added 8.76 million global subscribers during the quarter, higher than 5.49 million Wall Street had expected, according to estimates from Street Account. It’s the biggest quarterly net add total for the company since it added 10.1 million subscribers in the second quarter of 2020 – when Covid restrictions kept people home.

Here are the results:

• Earnings: $3.73 vs $3.49 per share expected, according to LSEG, formerly known as Refinitiv
• Revenue: $8.54 billion vs $8.54 billion expected, according to LSEG
• Total memberships expected: 247.15 million vs. 243.88 million expected, according to Street Account

Netflix said that its ad plan membership grew nearly 70% quarter-over-quarter, although it did not disclose what percentage of its base is subscribed to this tier.

The results were the latest confirmation that Netflix rules the streaming world, as its would-be rivals scratch and claw to become profitable.

The company’s dominance shows in its pricing power. Netflix said it is keeping its ad tier pricing at at $6.99 a month in the U.S. while its basic and premium services will see a price hike starting Wednesday. Netflix’s basic plan will now cost $11.99 (up from $9.99) and premium will be $22.99 a month (up from $19.99). Netflix’s standard plan will remain at $15.49 a month.

The price increases come as the company seeks to improve its profitability and grapple with higher production costs.

As part of its new deal with Hollywood’s writers, Netflix, alongside other members of the Alliance of Motion Picture and Television Producers, have agreed to higher wages and monetary benefits based on streaming popularity. The AMPTP has yet to finish negotiations with striking actors, but expectations are that costs for creating content will rise when a new contract is finalized.

“The last six months have been challenging for our industry given the combined writers and actors strikes in the U.S.,” Netflix said in its earnings release Wednesday. “While we have reached an agreement with the WGA, negotiations with SAG-AFTRA are ongoing. We’re committed to resolving the remaining issues as quickly as possible so everyone can return to work making movies and TV shows that audiences will love.”

The company forecast that revenue will jump 11% in the fourth quarter, reaching $8.69 billion, below Wall Street expectations of $8.77 billion. Netflix said it expects net subscriber adds will be similar to the third quarter.

It warned that the strength of the U.S. dollar in recent months will result in a roughly $200 million drag on fourth-quarter revenue.

As for Netflix’s profitability, the streamer now expects its full-year 2023 operating margin will be around 20%, the high end of its previous forecast range of 18% to 20%. It also said full-year 2024 should see operating margins of 22% to 23%.

The company also addressed shareholder concern about its executive compensation model, telling investors that it would make “substantial changes” in 2024 to a more conventional model. Compensation will still be based on performance.

Co-CEO Ted Sarandos and former co-CEO Reed Hastings each took home more than $50 million in 2022. Hastings took most of his earnings in stock options, while Sarandos elected to have a $20 million base salary and the rest in stock.

After Greg Peters was named co-CEO and Hastings stepped down, the company set a salary cap of $3 million for executives. However, they are still entitle to an annual target bonus and additional stock rewards.