Online streaming service Netflix posted robust earnings and subscriber figures for the third quarter of the year, sending the stock sharply higher during after-hours trading on Wednesday, rising by over 13%.
For the third quarter, Netflix reported earnings of $3.73 per share, exceeding the consensus estimate of $3.49, as per data compiled by Wall Street analysts tracked by FactSet. Revenue for the same period amounted to $8.54 billion, matching analysts' expectations.
The service also added 8.8 million paid subscriptions, surpassing the estimated 6.1 million, as per a Barron’s report, indicating that a crackdown on Netflix password sharing that began in May had failed to lower demand. Including the recent growth, there are currently 247 million Netflix subscribers worldwide.
Netflix also provided a revenue projection of $8.7 billion for the current quarter, slightly below the consensus forecast of $8.78 billion.
“We’re optimistic about our prospects and the future of entertainment,” management said in a letter to investors.
The company also announced it was raising the monthly price for its premium ad-free service in the U.S. from $19.99 to $22.99 — fees will also be raised for its basic plan, which is available only to existing subscribers. Netflix also plans to raise prices in Britain and France.
The company reported a net income of $1.6 billion, marking a nearly 20% increase compared to the previous year. In light of the recent writers' strike, which recently concluded, and the ongoing actors' strike following the breakdown of recent negotiations, Netflix is set to reduce its spending on content this year from $17 billion to approximately $13 billion, as per a report by The New York Times.
During the earnings conference call, Ted Sarandos, Netflix's co-chairman, said the company was “incredibly and totally committed to ending this strike,” pointing to how it has hurt the industry and the economy at large. However, Sarandos noted that a fresh demand from the actors' guild emerged last week — what he called “a subscriber levy that is unrelated to viewing or success” — “really broke our momentum.”
“The last six months have been challenging for our industry given the combined writers and actors strikes in the US,” Netflix said in a shareholder letter, noting that while the writers’ strike has ended, it continues to talk to the actors’ unions. “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.”
With Netflix’ third quarter results beating expectations, a number of analysts have upgraded their outlook and target prices for the stock.
KeyBanc analysts upgraded Netflix shares to Overweight with a $510 per share price target, as reported by Investing.com.
"In our view, Netflix is entering 2024E a cleaner story as: 1) paid sharing appears to have changed Netflix's ability to reach the next ~250M subs; 2) operating profit and FCF are steadily ramping; and 3) buybacks should support a 25%+ EPS growth profile”.
JPMorgan analysts hiked their Netflix price target to $480 per share on the Overweight-rated stock, writing:
“We’re encouraged that NFLX is executing on Paid Sharing by converting borrower households, contributing to revenue acceleration to +12% FXN in 4Q, & we believe the forecast for similar net adds to 3Q +/- a few million should skew to the upside given more favorable seasonality in 4Q & a strong content slate.”
At the time of writing on Thursday, NFLX shares were trading at $392.63, up over $46 and 13.4% in pre-market trading, as per MarketWatch data. The company’s stock has surged close to 17.5% year-to-date.
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