Netflix Inc. is reaping the rewards of a strong programming lineup and its crackdown on password sharing, as it reported its best quarter for subscriber growth in years. The streaming giant added a staggering 8.76 million customers in the third quarter, surpassing analysts' expectations and pushing its total subscriber base to a remarkable 247.2 million. This surge in subscribers has propelled Netflix's stock, with shares rising by 15.87% to $401.12, marking a year-to-date increase of over 36%, outperforming the S&P 500 Index's 12% gain.
Concerns had been raised that Netflix's crackdown on password sharing might lead to a loss of customers. However, the company's strategy has actually resulted in a significant increase in new customers without a substantial uptick in cancellations. Consequently, Netflix is on track to add over 20 million customers this year, a considerable jump from the under 9 million added in 2020.
The successful implementation of paid sharing, enabling customers to purchase additional access for friends and family, has emboldened Netflix to raise prices in some of its largest markets. The company recently announced price hikes in the US, UK, and France, with its most expensive plan in the US increasing by $3 to $23 and its basic plan rising by $2 to $12. Similar adjustments have been made in the UK and France.
Netflix's growth in the third quarter was primarily driven by Europe, the Middle East, and Africa, where nearly 4 million customers were added. The average revenue per customer has remained relatively stable over the past year. Looking ahead, Netflix predicts revenue of $8.69 billion and earnings of $2.15 per share for the current quarter, slightly below Wall Street projections. However, the company expects subscriber additions to be similar to the previous quarter.
After experiencing a sluggish period, Netflix has embarked on several major initiatives to rejuvenate growth. In addition to cracking down on password sharing, the company recently introduced an advertising-supported version of its streaming services in 12 markets. Approximately 30% of new customers in those markets opted for the ad-supported model in the last quarter.
While some streaming peers have struggled to find their footing, Netflix has managed to regain momentum. Competitors such as Walt Disney Co., Warner Bros Discovery Inc., and Paramount Global have undergone cost-cutting measures and staff reductions to improve their financial performance. Despite investing billions in new streaming services, most of these platforms are still operating at a loss.
On the other hand, Netflix has exceeded Wall Street expectations, reporting third-quarter revenue of $8.54 billion, a 7.8% increase, and earnings of $3.73 per share, beating estimates of $3.56. The company also announced that profit margins are expected to improve to at least 22% next year and potentially grow further in the coming years.
Netflix's cash flow has been bolstered by the ongoing labor stoppage in Hollywood, leading management to raise its free cash flow forecast to $6.5 billion for this year, up from a minimum of $5 billion. Additionally, the strike has had minimal impact on Netflix's release schedule, as many of its programs were already completed. The company has recently released new seasons of popular shows like Virgin River and Heartstopper, as well as successful new titles like the manga adaptation One Piece.
Interestingly, one of Netflix's standout hits for the quarter was not an original production but rather the series Suits, which originally aired on USA Network. The show garnered significant viewership on Netflix and was the most-watched program on the streaming platform throughout the summer. Additionally, Netflix announced a deal to release animated films produced by David Ellison's Skydance Media, further diversifying its content offerings.
In a letter to shareholders, Netflix proudly stated, "We've shown that with discipline and a focus on the long term, you can build a strong, sustainable streaming business." As the company continues to innovate and expand its subscriber base, it is clear that Netflix remains at the forefront of the streaming industry.