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On Wednesday night Netflix released a strong set of numbers, helping the stock close up 16% yesterday. The company posted revenue of $8.54 billion and earnings per share of $3.73, both beating analyst expectations.
The company has had a tricky two years. At the end of 2021, it was flying high on Covid tailwinds and reached a share price peak of around $700. Then subscriber numbers dropped unexpectedly and Netflix struggled to push through price increases. The share price fell off a cliff, plummeting down to $200. Since then subscriber numbers have stabilised and the company launched an ad-supported subscription package, and the share price has climbed back to around $400.
The best part of these results was the addition of 8.7 million new subscribers, much higher than expectations, to 247 million in total, worldwide. The password-sharing crackdown has driven some of the growth. People leeching on a "borrowed" password were forced to get their own subscriptions, and in most cases they have. All the bluster about people threatening to quit Netflix hasn't materialised.
The Hollywood creative worker strike has 'saved' Netflix close to $3 billion in content creation costs. At this time last year (nine months in) they had spent $12.7 billion on new programming, this year it is only $9 billion. Content spending for next year is expected to be $17 billion, getting back to its previous run rate.
The other positive surprise in this earnings release was the news of another price hike. In the US, a basic plan will go from $9.99 to $11.99 and the premium plan from $19.99 to $22.99 per month. The UK and France will also see price hikes.
Let's see where Netflix is in six to 12 months from now, when the positive effects from the password crackdown are behind us and we can assess the impact of the price hikes. The important metrics are moving in the correct direction - there is strong subscriber growth, monthly premiums are increasing and it is generating solid free cash flow.
Onwards, back to $700 a share.
