Netflix Sees Largest Subscriber Growth in 3 Years... After-Hours Surge Over 12% (Comprehensive)

The world's largest online video service (OTT), Netflix, posted better-than-expected strong results in the third quarter due to improved profitability from charging for shared accounts. Contrary to concerns that charging for accounts could lead to subscriber churn, the number of new subscribers increased at the fastest pace in three years.

According to the earnings report released by Netflix on the 18th (local time), Netflix added 8.76 million subscribers worldwide in the third quarter of this year. This significantly exceeded Wall Street's estimate of 5.49 million and was the highest since the special demand surge caused by COVID-19 in the second quarter of 2020 (10.1 million). The total number of global subscribers reached 247.15 million, an increase of nearly 11% compared to a year ago.

[Image source=Reuters Yonhap News]

The earnings also showed surprising growth. The third-quarter net income was $1.677 billion (approximately 2.3 trillion KRW), a 20% increase from $1.398 billion in the same period last year. Adjusted earnings per share were $3.73, surpassing the market expectation of $3.56. Revenue for the same period rose 7.8% year-over-year to $8.542 billion (approximately 11.6 trillion KRW), meeting market expectations of $8.52 billion. Operating income was $1.916 billion (approximately 2.6 trillion KRW), up 25% from the previous year.

The company explained that the paid account sharing policy contributed to the influx of new subscribers. Netflix is expanding the account sharing ban to all regions while preventing subscriber churn by introducing an affordable ad-supported plan. In July, Netflix discontinued its cheapest ad-free basic plan. As a result, new subscribers who do not want ads must subscribe to a plan costing at least $15.49 per month. The elimination of the basic plan led to a price increase effect, which the company said contributed to improved profitability. Netflix stated, "Profitability improvements were particularly noticeable in countries such as the United States, the United Kingdom, and France in the third quarter."

The outlook for the fourth quarter is also positive. Netflix set its revenue target for the fourth quarter of this year at $8.7 billion, representing an approximately 11% increase compared to the same period last year.

Netflix also announced price increases on the same day. The most expensive premium plan was raised by $3 to $23, and the basic plan was increased by $2 to $12. The ad-supported plan ($7) and the standard plan ($15.5) remained unchanged.

In a shareholder letter, Netflix stated, "Due to the production halt caused by strikes by the Hollywood Writers Guild and Actors Guild, this year's content investment amount has been reduced from the original $17 billion to $13 billion," adding, "Reflecting the reduced spending, we have raised this year's free cash flow forecast from the previous $5 billion to $6.5 billion."

The market also cheered the strong results that exceeded expectations for revenue, net income, and new subscribers. Netflix's stock closed at $346.19, down 2.68% in regular trading on the day, but after-hours trading saw a surge of over 12% as buying interest flowed in following the strong earnings report.