Netflix Thrived Despite Hollywood Tensions

On Wednesday, Netflix Inc NFLX smashed estimates with its third quarter results that were fueled by a strong growth in subscribers, its biggest quarterly growth since 2020’s second quarter. Its international content production made it resilient to the ongoing strike in Hollywood and it attracted new audiences by licensing content from its rivals such as Comcast Corporation CMCSA. Netflix shares rose almost 14% upon results.

Quarterly Highlights

Despite strikes that paralyzed the entertainment industry and halted Netflix’s U.S. content production, the streaming giant added 8.8 million subscribers, which is its best performance since the peak of the pandemic. Netflix lured in new audiences thanks to its overseas production, as well as by licensing content such as Suits it got from Comcast. Third quarter revenue grew 7.8% YoY to $8.542 billion with net income rising from 2022’s comparable quarter when Netflix earned$1.677 billion to $1.398 billion. Earnings of $3.73 per share topped Wall Street's expectation of $3.49, according to Reuters.

During the quarter, Netflix cracked down on password sharing, limiting the use of one account per household. Netflix also added a subscription option that allows users to pay less if their viewing is interrupted by advertisements before and during films and shows. 

Outlook

Netflix guided for fourth quarter revenue of $8.69 billion which is slightly below analysts’ estimate of $8.77 billion. For the full year, Netflix guided for an operating margin of 20%. 

Netflix Proved It Is Still The King Of Streaming

Yet, despite the success of crackdown on password sharing, Netflix raised prices for some of its subscription plans on Wednesday in the U.S., the U.K and France. The price premium ad-free plan in the U.S. has been increased by $3 per month to $22.99, by 2 pounds to 17.99 pounds in the U.K and by 2 euros to 19.99 euros in France. As it moves deeper into advertising, Netflix seems to be firing on all cylinders and heading into the right direction. 

Unfortunately, The Same Cannot Be Said For Disney

Unlike Netflix, Disney Plus is still posting big losses although The Walt Disney Company DIS has been narrowing them down. Bob Iger came back to restore magic at the magic kingdom that Disney has been proudly touting for a century, but things have been going south with the unprecedented labor strikes, along with internal issues that already troubled the world’s biggest entertainment company. Its costly efforts to keep up with Netflix, losing subscribers and weak box-office performance undoubtedly dimmed its centenary celebrations that are taking place this week. When Disney launched Disney+, its goal was to dethrone Netflix by 2024. Yet, Netflix now has a userbase of 239 million subscribers and Disney+ userbase contracted to 146 million. Disney has also been locked in a battle against Comcast over Hulu for years. Hulu is now a valuable asset to have in the battle for streaming dominance and it already costed both of them a lot of money. Disney owns two thirds of Hulu and wishes to buy out the remaining 33% stake from Comcast. On Tuesday, Disney and Comcast revealed they each hired investment banks to step in as the sale process makes progress. Dan Ives, analyst at US-based Wedbush, finds that Disney made the right bet by betting on streaming, but it did it at the wrong time for the streaming business, unlike Netflix who is still enjoying its first-mover supremacy. 

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