What happened
Shares of Netflix (NFLX 3.04%) charged sharply higher on Wednesday, surging as much as 15.9%. As of 10:37 a.m. ET, the stock was still up 15.5%.
The catalyst that drove the streaming pioneer higher was the company's financial results, which held good news on multiple fronts.
So what
Much to the delight of shareholders, Netflix reported that its subscriber growth turned positive in the third quarter, after two consecutive quarters of declines. Perhaps as importantly, it did so in grand fashion, with 2.4 million net additions, far exceeding its own guidance -- and Wall Street's expectations -- of 1 million new subscribers. "Thank God, we're done with shrinking quarters," said co-founder and co-CEO Reed Hastings on the earnings webcast to discuss the results.
Netflix generated revenue of $7.9 billion, which rose 5.9% year over year. Excluding the impact of exchange rates, revenue grew 13%. The currency challenges continued to the bottom line, as its earnings per share (EPS) of $3.10 dipped slightly.
However, both numbers easily cleared expectations, with analysts' consensus estimates calling for revenue of $7.8 billion and EPS of $2.14.
Now what
Netflix management discussed the company's upcoming ad-supported service at great length. The "basic with ads" tier will launch in 12 countries and is set debut on Nov. 3 at $6.99 per month. The service will include four to five minutes of commercials per hour, with ads of 15 to 30 seconds in length. The price is also $1 less than competing ad-supported services by Disney+ and Hulu.
Co-CEO Ted Sarandos said, "Our basic with ads tier is going to help us open up Netflix to a whole new audience of folks who are attracted to all that great content at an even lower price point." Chief Operating Officer Greg Peters chimed in, saying the tier will "bring in a lot more members, and we're quite confident in the long term that this will lead to a significant incremental revenue and profit stream."
Add in mega hits like Stranger Things 4, Monster: The Jeffrey Dahmer Story, and The Gray Man, and Netflix has once again proven its ability to bounce back in the face of adversity. That's why the stock is a buy.
