Netflix earnings: Wall Street applauds ‘upside surprises’
Netflix (NFLX) stock jumped as much as 16% on Thursday after the streaming giant reported earnings that beat expectations on both the top and bottom lines while subscriber additions surged by nearly 9 million in the quarter.
The company also revealed it will be raising prices in the US, UK, and France — a positive development to some analysts on Wall Street.
“Of all the new data points, we think the biggest surprise is the immediate and substantial price hikes in three of Netflix’s largest revenue markets,” MoffettNathanson analyst Michael Nathanson wrote in reaction to the report on Thursday.
Netflix’s Basic and Premium plans will now cost $11.99 and $22.99, respectively, in the US. That’s up from the prior $9.99 and $19.99 price points. The company’s $6.99 ad-supported plan and $15.49 Standard plan will stay the same price.
“By [raising prices], Netflix is further incentivizing new and existing members to sign up for its materially lower priced ad-supported plan while also driving ARM, [or average revenue per membership], among households that are either price inelastic and/or advertising adverse,” the analyst continued.
Nathanson, who maintained his Neutral rating and price target of $390 on the stock, raised his fourth quarter and full-year 2024 revenue projections by 2.6% and 3.5%, respectively, citing the price hikes.
He also estimated ARM will jump between 8% and 9% in the three markets impacted by the pricing changes, assuming no major changes in subscriber behavior.
ARM decreased 1% year over year in the third quarter, although Netflix said the pricing changes will help significantly boost the metric in the quarters to come.
“Netflix rolled out a series of upside surprises across a variety of 2023 and 2024 metrics that have the net effect of materially lifting 2023 free cash flow and 2024 EPS,” Nathanson said. “This will undoubtedly be the read of the market, which will help stabilize Netflix’s recently turbulent stock price.”
Netflix shares, although up more than 30% year to date, are still down 15% over the past three months.
