Netflix Earnings: Wall Street Welcomes “Positive Surprises”
Shares of Netflix (NFLX) rose as much as 16% on Thursday after the streaming giant reported earnings that beat expectations in both revenue and profit, while subscriber numbers rose by nearly 9 million in the quarter.
The company also said it would raise prices in the U.S., U.K. and France, a positive development for some Wall Street analysts.
“Of all the new data points, the biggest surprises in our view are the immediate and significant price increases in three of Netflix’s largest revenue markets,” MoffettNathanson analyst Michael Nathanson wrote in response to the report on Thursday.
Netflix’s Basic and Premium plans now cost $11.99 and $22.99 in the US, respectively. That’s an increase from the previous price points of $9.99 and $19.99. The company’s $6.99 ad-supported plan and $15.49 standard plan remain priced the same.
“From [raising prices]Netflix is further incentivizing new and existing members to sign up for its significantly cheaper ad-supported plan, while also pushing ARM. [or average revenue per membership]among households that are either price inelastic and/or advertising hostile,” the analyst continued.
Nathanson, who maintained his neutral rating and $390 price target on the stock, raised his fourth-quarter and full-year 2024 revenue forecasts by 2.6% and 3.5%, respectively, citing price increases.
He also estimated that ARM will rise between 8% and 9% in the three markets affected by the pricing changes, assuming there is no significant change in subscriber behavior.
ARM fell 1% year over year in the third quarter, although Netflix said the pricing changes will help boost the metric significantly in coming quarters.
“Netflix has delivered a number of positive surprises across a variety of metrics for 2023 and 2024, which have the net effect of significantly increasing free cash flow in 2023 and earnings per share in 2024,” Nathanson said. “This will undoubtedly be the market’s opinion, helping to stabilize Netflix’s recently turbulent share price.”
Although Netflix shares are up more than 30% year to date, they’re still down 15% in the last three months.
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