Shares of Netflix, Inc. (NASDAQ: NFLX) skyrocketed in the pre-market trading Thursday as the streaming giant reported an increase of nearly 9 million new subscribers in the third quarter. The company also unveiled a series of significant price hikes aimed at bolstering its revenue and tackling password sharing.
Netflix revealed its plans to raise subscription prices in key markets, including the United States, the United Kingdom, and Canada. The basic U.S. subscription price will rise to $11.99, with the premium plan reaching $22.99. However, the ad-tier pricing will remain unchanged, providing a lower entry point for new subscribers as the company intensifies efforts to curb household password sharing.
This price hike demonstrates Netflix’s confidence in building upon its massive 246 million global subscriber base, bolstered by an impressive addition of 8.76 million new subscribers over the quarter. This exceptional growth has outperformed Street forecasts, even amidst a shortage of new original programming due to the ongoing Screen Actors’ Guild strike.
Netflix (NASDAQ: NFLX) has also hinted at the potential to add a similar number of subscribers in the fourth quarter while lifting its free cash flow guidance.
Profits for the third quarter came in at $3.73 per share, marking a substantial 20.3% increase from the same period last year, beating the Street consensus forecast of $3.49 per share.
Pivotal Research Group analyst Jeffrey Wlodarczark, who holds a ‘buy’ rating with a $600 price target on the stock (the highest on Wall Street), stated,
“While delivering nicely stronger than expected subscriber growth (the key to the Netflix flywheel) the company is also clearly demonstrating its scale highlighted by continuing expanding operating margins and $6.5 billion in ’23 free cash flow and guidance for continued expanding operating margins in 2024.”
“Netflix is dominating the global streaming market that we do not believe is properly reflected in its current market valuation.”
Netflix stock skyrocketed by more than 14% following the news, indicating an opening bell price of $394.79 each.
The recently announced price changes are expected to quell concerns raised by investors following comments from CEO Greg Peters at a Goldman Sachs media conference last month, where he seemed to prioritize market share growth over profitability.
Netflix (NASDAQ: NFLX) affirmed its financial objectives in a shareholder letter, stating,
“Our primary financial metrics are revenue for growth and operating margin for profitability. Our goal is to accelerate revenue growth, expand operating margin, and deliver growing free cash flow.”
The company added,
“Nine months through the year, we are well positioned to meet these objectives in 2023.”