Netflix's Strong Subscriber Growth Driven by Content

Shares of Netflix Inc. (NFLX) have increased by 6.93%.

Stocks increased on Friday after the streaming service exceeded its own expectations for subscriber growth in the fourth quarter. Analysts were considering the effects of its plans to prevent password sharing and introduce an ad-supported plan.

On Thursday, the streaming giant reported that it had gained 7.7 million new subscribers in the fourth quarter, surpassing its own expectations of 4.5 million and increasing revenue by 1.9% compared to the same quarter in the previous year.

Stock prices increased 6.9% in recent trading, bringing them to $337.55, which would be the highest close since April if the trend continues.

Analysts reported on Friday that the impressive subscriber growth was due to the release of two popular titles in the fourth quarter, "Glass Onion: A Knives Out Mystery" and "Wednesday".

Wells Fargo analysts noted in a note that content performance is playing a major role in the financial progress of investors, allowing them to rest more easily.

Netflix management has warned that user growth in the first quarter of 2023 is likely to be only slightly positive, as the company's fourth-quarter success is likely to have brought forward some demand. They are also preparing for some customer attrition as they take steps to prevent password sharing among users.

Analysts from Credit Suisse have commented that the new restrictions imposed on Netflix will make it difficult to accurately gauge subscriber growth during the first half of 2023. This is due to the introduction of a new feature that allows users to pay an additional fee if they wish to share their account with people outside of their home.

Analysts from MoffettNathanson have suggested that the transition may have a negative effect on net gains in the short-term, as some users may choose to cancel their Netflix subscription out of frustration. However, it is also anticipated that the shift will result in an increase in revenue over the course of the year, as some former shared-account holders begin to pay for their own accounts.

Greg Peters, the newly appointed Co-Chief Executive of Netflix, has reported that the launch of their ad-supported subscription tier has been going well, with no technical issues and only a small number of people switching from their paid-plan subscriptions. He referred to this as "ridiculously early" indications.

Mr. Peters commented that they were providing a dependable experience that was even better than they had anticipated.

Wedbush analysts Alicia Reese and Michael Pachter are hopeful that the ad-tier will help reduce the anticipated churn from password-sharing and increase revenue growth. They believe that the ad-tier option likely "attracted back subscribers who had previously churned."

Analysts have predicted that Netflix will experience a resurgence in the upcoming year, resulting in an estimated 17 million new subscribers.

Analysts were not surprised by the news that Netflix co-founder Reed Hastings had resigned from his role as co-chief executive on Thursday. The streaming service has appointed former chief operating officer, Mr. Peters, to take over the co-CEO position and work alongside Ted Sarandos. Mr. Peters was instrumental in the quick launch of the ad-supported tier in November.