Inside Netflix blockbuster earnings report: 5 key takeaways

Hollywood is in a state of absolute agony, but Netflix had some reason to celebrate on Wednesday, with the streaming giant releasing a smash earnings report after implementing its long-anticipated plans to clamp down on password sharing. Here are some of the key highlights:

►Adds 5.9 million subs: Heading into the earnings report, investors were curious how much the company’s crackdown on password sharing would boost subscriber growth. Well, now we know. And the numbers did not disappoint. Netflix added 5.9 million subscribers in the quarter — just one year after it had lost nearly a million subscribers. Expect Netflix, which now boasts 238 million global subscribers, to keep benefiting from this password sharing clampdown. The streamer boasted that “sign ups are already exceeding cancellations” and that it is implementing the password policy across the world now.

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► BUT… Netflix (NFLX) did narrowly miss on revenue, with its stock 8% down in after hours trading as Wall Street remains concerned about streaming profits that are plaguing the industry at large. But, it’s worth noting here that Netflix (NFLX) is still in its own league, having built a profitable streaming model while its legacy media competitors struggle to do so in an increasingly difficult environment.

► More free cash flow: Netflix, the first major media company to report earnings this quarter amid the chaos gripping Hollywood, upped its free cash flow $1.5 billion to approximately $5 billion for the year. The company cited “lower cash content spend” amid the writers’ and actors’ strikes that have brought content production to an absolute standstill.

► ‘This strike is not an outcome that we wanted’: During the earnings call, co-chief executive Ted Sarandos addressed the elephant in the room, saying he wanted to be “absolutely clear” that the dual strikes were “not the outcome” the streamer wanted. “We make deals all the time. We are constantly at the table negotiating with writers, with directors, with actors, and producers, with everyone across the industry,” Sarandos said. “And we very much hoped to reach an agreement by now.”

► Goodbye, $9.99 ad-free plan: Ahead of the earnings, Netflix axed its cheapest ad-free option in the US and the UK. The plan, offered at $9.99, is no longer available to new customers (those previously subscribed to the plan won’t be impacted.) The decision to cut the bare bones plan appears aimed at pushing subscribers in that price tier toward the ad-supported model, which is priced at $6.99. The company has previously said the ad-supported model performed better on the “economics” than the $9.99 ad-free model.

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