Netflix Shares Rallied on Q3 Earnings, Subscriber Surge – Analysts Bullish

The Netflix Inc (NASDAQ: NFLX) share price rallied 13.43% as of 6:50 ET after the movie-streaming company reported significant growth in subscriber numbers, primarily attributed to efforts to crack down on password-sharing and introducing a new ad-supported tier. 

The streaming giant added 8.76 million global subscribers during the quarter, surpassing Wall Street estimates of 5.49 million. This marks the largest quarterly net addition for the company since Q2 2020, when it added 10.1 million subscribers after COVID-19 restrictions led to more people staying at home.

Netflix reported earnings of $3.73 per share, exceeding the expected $3.49 per share, as per LSEG (formerly Refinitiv). The company's revenue was $8.54 billion, in line with expectations. Furthermore, Netflix reported total memberships of 247.15 million, surpassing the expected 243.88 million subscribers. 

Netflix noted that its ad-supported subscriber base grew by nearly 70% quarter-over-quarter, although the specific percentage of its user base subscribing to this tier was not disclosed.

The company demonstrated its pricing power by maintaining the ad tier pricing at $6.99 monthly in the U.S. However, the basic and premium services saw price increases, with the basic plan now costing $11.99 (up from $9.99) and the premium plan set at $22.99 monthly (up from $19.99). 

The standard plan's price remained unchanged at $15.49 a month. These price adjustments come as Netflix seeks to enhance its profitability and manage higher production costs. 

As part of a new agreement with Hollywood's writers, Netflix and other members of the Alliance of Motion Picture and Television Producers (AMPTP) have agreed to higher wages and monetary benefits tied to streaming popularity. Talks with striking actors are ongoing, and content creation costs are expected to rise upon finalising a new contract.

Netflix warned that the strength of the U.S. dollar in recent months would have an approximately $200 million impact on fourth-quarter revenue. The company anticipates revenue will increase by 11% in the fourth quarter, reaching $8.69 billion. 

Netflix revised its full-year 2023 operating margin projection, now expecting it to be around 20%, the high end of its prior range of 18% to 20%. Additionally, it anticipates 22% to 23% operating margins for fiscal 2024.

Netflix share price. 

Netflix shares were trading up 13.43% at $392.70, from Wednesday’s closing price of $346.19.

As expected, Wall Street analysts were buoyed by the Netflix report. Loop Capital noted the streaming giant's “strong” 2024 set-up. Meanwhile, analysts at Morgan Stanley and Truist upgraded the stock.

Morgan Stanley raised NFLX to Overweight from Equal-Weight, raising the price target to $475 from $430. The investment bank told investors that against a “rising anxiety and falling stock price,” Netflix has accelerated, with the password crackdown working and competition pulling back. Morgan Stanley now believes NFLX will deliver on its objectives set out a year ago, accelerating revenue growth back to double digits and expanding margins.

Loop Capital lifted Netflix to Buy from Hold, increasing the stock price target to $465 from $430. The firm noted Netflix's better-than-expected margin outlook alongside the ongoing advertising ramp and share buybacks.