Netflix's Stock Climbs More Than 12% Due to Price Hikes and an Increase in Subscribers

Netflix Inc. witnessed a substantial surge in its stock on Wednesday, driven by a remarkable increase in its subscriber base, earnings that met expectations, and an announcement regarding price hikes for its basic and premium services.

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Netflix announced an immediate price increase for its basic plan in the U.S., raising it from $9.99 to $11.99 per month, and elevating the premium service price from $19.99 to $22.99 per month. Meanwhile, the ad-supported plan remained at $6.99 per month, and the standard plan at $15.49.

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Netflix reported a staggering increase of 8.76 million subscribers in the third quarter of the year, surpassing analysts' average estimate of approximately 6 million. The company's fiscal third-quarter net earnings amounted to $1.7 billion, or $3.73 per share, compared to $3.10 per share in the same quarter of the previous year.

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Revenue also saw improvement, rising to $8.54 billion from $7.9 billion a year ago. Analysts surveyed by FactSet had, on average, expected net earnings of $3.49 per share on revenue of $8.54 billion.

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Looking ahead to the fourth quarter, Netflix executives provided guidance for earnings of $2.15 per share on $8.7 billion in revenue, slightly below analysts' average expectations of earnings at $2.16 per share on sales of $8.8 billion.

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Executives at Netflix also addressed the progress of their ad-supported platform. They emphasized the significant growth, with ad-tier subscriptions surging nearly 70% in the third quarter compared to a year ago. These subscriptions now constitute 30% of new sign-ups in a dozen countries, as noted by the company's leadership.

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Netflix disclosed that its measures to combat password sharing had resulted in fewer cancellations than initially expected. Despite challenges like two Hollywood strikes, the company planned to allocate approximately $13 billion for content spending this year.

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In a videoconference call discussing the results, Netflix Co-Chief Executive Greg Peters mentioned the company's intention to continue the rollout of paid sharing measures over the next several quarters.

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Following the release of these impressive results, Netflix's shares surged by nearly 13% in after-hours trading, recovering from a 3% decline during the regular trading session.

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While Netflix's stock has shown a 17% gain year-to-date, it encountered some stumbling blocks in the previous months. This is in contrast to the broader S&P 500 index, which has achieved a 12% increase year-to-date.

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Rumors of an impending price hike had circulated for over a week, with some analysts speculating that Netflix might be more assertively adopting a traditional media strategy involving advertising-supported subscription tiers to optimize revenue. The theory suggests that a significant number of consumers may opt for a cheaper, ad-supported model over the more expensive ad-free premium services.

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Jon Christian, the Executive Vice President of Qvest U.S., a streaming technology provider, emphasized the importance of average revenue per user and raised questions about the effectiveness of the ad-supported tier. He pointed out that this strategy appears reminiscent of the traditional TV revenue model and indicated that Netflix, despite pioneering the streaming market, now faces intensified competition from the likes of Walt Disney Co., Apple Inc., Amazon.com Inc., Paramount Global, Comcast Corp., and others.

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Netflix's co-CEO, Ted Sarandos, credited the company's success in part to third-party content licensed by Netflix, with the legal drama-comedy "Suits" from the old USA Network being highlighted as the No. 1 streaming series for 13 consecutive weeks, according to Nielsen data.

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Sarandos also underscored Netflix's commitment to sports, particularly sports documentaries and stories about high-profile athletes like David Beckham, rather than live events.

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With its astounding increase in subscribers, Netflix's worldwide user base now stands at 247.15 million. As the company continues to evolve in an increasingly competitive streaming landscape, its strategic emphasis on content, pricing, and advertising-supported options will play a crucial role in shaping its future.

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