Netflix stock surges 13% as profit beats expectations, ad-tier subscriptions rise

LOS ANGELES — Netflix shares surged Thursday morning, after the company reported a boost in subscriber growth driven by a password-sharing crackdown efforts and interest in its new ad-supported tier.

The streaming giant said after the market closed Wednesday that it had added 8.76 million global subscribers during the third quarter, higher than 5.49 million Wall Street had expected, according to estimates from Street Account. It's the biggest quarterly net add total for the company since it added 10.1 million subscribers in the second quarter of 2020 – when Covid restrictions kept people home.

Here are the results:

Netflix said that its ad plan membership grew nearly 70% quarter over quarter, although it did not disclose what percentage of its base is subscribed to this tier.

The results were the latest confirmation that Netflix rules the streaming world, as its would-be rivals scratch and claw to become profitable.

The company's dominance shows in its pricing power. Netflix said it is keeping its ad tier pricing at at $6.99 a month in the U.S. while its basic and premium services will see a price hike starting Wednesday. Netflix's basic plan will now cost $11.99 (up from $9.99) and premium will be $22.99 a month (up from $19.99). Netflix's standard plan will remain at $15.49 a month.

The price increases come as the company seeks to improve its profitability and grapple with higher production costs.

Read more: Netflix is leaning more into sports programming

As part of its new deal with Hollywood's writers, Netflix, alongside other members of the Alliance of Motion Picture and Television Producers, have agreed to higher wages and monetary benefits based on streaming popularity. The AMPTP has yet to finish negotiations with striking actors, but expectations are that costs for creating content will rise when a new contract is finalized.

"We spent hours and hours with SAG-AFTRA over the last few weeks and we were actually very optimistic that we were making progress," said co-CEO Ted Sarandos during the company's taped earnings comments Wednesday. "But then at the very end of our last session together the guild presented this new demand on top of everything of a per subscriber levy, unrelated to viewing or success, and this really broke our momentum unfortunately."

Sarandos noted that Netflix and other members of the AMPTP remain committed to reaching an agreement with actors. It is unclear when negotiations will continue. Talks have been stalled for about a week.

Representatives from SAG-AFTRA did not immediately respond to CNBC's request for comment.

The company forecast that revenue will jump 11% in the fourth quarter, reaching $8.69 billion, below Wall Street expectations of $8.77 billion. Netflix said it expects net subscriber adds will be similar to the third quarter.

Netflix stock performance this year

It warned that the strength of the U.S. dollar in recent months will result in a roughly $200 million drag on fourth-quarter revenue.

As for Netflix's profitability, the streamer now expects its full-year 2023 operating margin will be around 20%, the high end of its previous forecast range of 18% to 20%. It also said full-year 2024 should see operating margins of 22% to 23%.

The company also addressed shareholder concern about its executive compensation model, telling investors that it would make "substantial changes" in 2024 to a more conventional model. Compensation will still be based on performance.

Sarandos and former co-CEO Reed Hastings each took home more than $50 million in 2022. Hastings took most of his earnings in stock options, while Sarandos elected to have a $20 million base salary and the rest in stock.

After Greg Peters was named co-CEO and Hastings stepped down, the company set a salary cap of $3 million for executives. However, they are still entitled to an annual target bonus and additional stock rewards.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is a member of the AMPTP.