Yahoo Finance

Netflix beats and raises. It's time for a price hike: Analyst

Netflix (NFLX) reported third quarter results that topped analyst estimates on the top and bottom lines. Diluted earnings per share are at $5.40, compared to the $5.12 expected, while revenue sat at $9.83 billion, just ahead of the $9.78 billion Wall Street expected, according to Bloomberg consensus estimates. The streaming giant added 5.07 million paid subscribers during the quarter, above the 4.52 expected. The company released its fourth quarter outlook with diluted earnings per share to come in at $4.23, compared to analyst estimates of $3.90 and $10.13 billion in revenue, above the $10.01 billion expected. Bloomberg Intelligence senior media analyst Geetha Ranganathan joins Market Domination Overtime Hosts Julie Hyman and Josh Lipton to discuss Netflix's results and what's next for the streaming company. "It's a pretty high-quality beat," Ranganathan tells Yahoo Finance. "If you were looking for the subscriber numbers, they were definitely there. If you're looking for the top-line growth number, they obviously over-delivered on that. But I think what really kind of stood out to me was their margin guidance." She explains that the company seems to be providing a conservative margin outlook, given its sales guidance implies some operating margin expansion. "It's probably a little bit of a conservative approach, but but this is this is exactly how Netflix wants to spin their new narrative. Remember, in a few months, they are going to stop disclosing subscriber metrics. They really want to position themselves as a top-line growth story and definitely as a bottom-line growth story as well." Ranganathan says the next step investors want to see from Netflix is a price hike. "A price increase is long overdue, and I think that's really what investors are looking for," she says, adding, "You look at the valuation of this stock, I mean that it's premium valuation, there's no doubt about it. Revenue growth is really kind of what underpins that that lofty valuation. And for you to have consistent revenue growth, obviously, you need those price increases. And why not?" The analyst says Netflix has the pricing power and engagement to justify increasing prices, but "They're just waiting to see how to kind of implement that price increase. They're going to have to do it very carefully because, remember, they're trying to balance subscriber growth along with revenue growth. At the same time, they also have to grow their advertising tier, and how much they grow their advertising tier will depend on how they price the ad-free tier because if they really increase the price substantially, they could end up driving a lot more subscribers to that ad-based tier and beefing up their advertising revenue... it's going to be a really careful balancing act." To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here. This post was written by Naomi Buchanan.