Netflix Inc.’s stock surged Wednesday on a huge jump in subscribers, earnings that met expectations and an announced price hike in the company’s basic and premium services.
Netflix said it plan to immediately raise prices for its Basic plan in the U.S. to $11.99 a month from $9.99, and lift its Premium price to $22.99 a month from $19.99. The ad-supported ($6.99 a month) and standard plans ($15.49) remain the same.
Netflix
NFLX,
reported that subscribers increased by a whopping 8.76 million in the third quarter of the year, blowing past analysts’ average estimate of about 6 million. Netflix reported fiscal third-quarter net earnings of $1.7 billion, or $3.73 a share, compared with $3.10 a share in the year-ago quarter.
Revenue improved to $8.54 billion from $7.9 billion a year ago. Analysts surveyed by FactSet had expected on average net earnings of $3.49 a share on revenue of $8.54 billion.
For the fourth quarter, Netflix executives guided for earnings of $2.15 a share on $8.7 billion in revenue, while analysts on average were expecting earnings of $2.16 a share on sales of $8.8 billion.
Netflix executives also weighed in on the progress of the progress of its ad-supported platform. “While we have much work to do to build out this business, we’re making good progress and laying the foundation for what we believe should be a multibillion-dollar revenue stream over time,” Netflix executives wrote in a letter to shareholders.
The company said its crackdown on password sharing had led to fewer cancellations than it had expected, and that content spend this year is about $13 billion despite two Hollywood strikes.
Shares surged 11% in after-hours trading immediately following the release of the results, after closing the regular session with a 3% decline.
Netflix’s stock has advanced 17% so far this year but has stumbled the past few months, while the broader S&P 500 index
SPX
is up 12% year to date.
With rumors swirling around another subscriber price hike for more than a week, some analysts see Netflix pursuing a traditional media strategy of offering advertising as well as ad-free services to maximize revenue. The thinking is that many consumers will opt out of pricey premium services for an ad-supported model.
“Subscriber growth is big, but what is more important is average revenue per user,” said Jon Christian, executive vice president of Qvest U.S., a streaming technology provider, said in an interview. “For me, how well is the ad-tier working?”
The prospect of consumers paying for a service that is also supported by ads harkens to the TV revenue model, Christian said, as Netflix continues to lead a market he helped create but now faces intensifying pressure from Walt Disney Co.
DIS,
Apple Inc.
AAPL,
Amazon.com Inc.
AMZN,
Paramount Global
PARA,
Comcast Corp.
CMCSA,
and others.
With its stunning addition of subscribers, Netflix now boasts 247.15 million worldwide.
This post was originally published on Market Watch
