Netflix experienced a remarkable 16% surge in shares on Thursday, following an impressive quarterly earnings report.
The streaming powerhouse celebrated numerous victories, most notably a staggering 70% increase in their newly introduced ad-supported subscription tier.
In terms of overall subscribers, Netflix saw a remarkable addition of 8.76 million in the third quarter, surpassing Wall Street’s estimated 5.49 million. This surge represents the largest subscriber growth since the second quarter of 2020, when the Covid-19 stay-at-home measures led to a spike in new sign-ups.
Netflix Returns To Growth
Wednesday’s report marks a significant return to growth for Netflix. In April 2022, the company experienced its first net subscriber loss in over a decade, sparking concerns of market saturation. The positive results have been met with praise from various analysts.
Morgan Stanley analysts elevated the stock to an overweight rating and increased the price target to $475. They expressed confidence that Netflix would achieve its objectives outlined a year ago, with an anticipated acceleration in revenue growth to double digits and an expansion of margins.
Truist analyst Matthew Thornton also conveyed optimism in a note on Thursday, suggesting that the crackdown on password-sharing could further drive subscriber growth into the coming year. The firm went on to upgrade Netflix to a buy rating, while elevating the price target from $430 to $465.
Thornton emphasized, “We upgrade to Buy with our thesis predicated on ongoing password sharing benefits (into 2024), advertising ramp (long-term), and share buybacks ($10b added), with top 3 tent-poles by 2025 (Squid Game, Wednesday, Stranger Things), with video games a free call option, and with optional growth levers available to NFLX.”
What Is Netflix’s New Ad-Based Tier?
Ahead of its debut, Netflix had initially projected 1.1 million subscribers by the end of 2022, with an ambitious surge to 13.3 million by the third quarter of 2023. Industry prognosticators envision a potential 30 million U.S. subscribers eventually gravitating towards Netflix’s ad-supported tier. Among the 12 markets where Netflix has ventured into ad sales, the U.S. stands prominently.
Early reports suggested a sluggish start for the new ad-supported tier. Antenna, an analytics firm, indicated that in its inaugural month, fewer than 10% of fresh sign-ups opted for the ad-supported option, rendering it the least favoured choice. However, since then, Antenna’s data highlights that nearly 20% of all new U.S. subscribers are now embracing this cost-effective alternative.
What Are The Current Prices For Netflix Subscriptions?
Subscribing to Netflix with ads comes at a monthly fee of $6.99. For the ad-free options, the rates stand at $9.99 monthly for basic, $15.49 monthly for standard, and $19.99 monthly for premium. According to Netflix, the majority of those opting for the ad-supported tier are either brand-new subscribers or returning ones. As a result, there has been a minimal migration of existing users to this lower-cost tier.
How Many Global Subscribers Does Netflix Have?
According to Statista, as of the third quarter of 2023, Netflix boasted approximately 247.2 million paid subscribers on a global scale. This represented a notable surge, with an additional eight million subscribers joining compared to the preceding quarter.
The majority of Netflix’s subscriber stronghold lies in the EMEA region (Europe, Middle East, and Africa), constituting a robust base of over 83 million subscribers, and a substantial portion of the platform’s worldwide audience.
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