Netflix sees return to growth after losing millions of customers

After losing more than a million customers in the first half of 2022, Netflix Inc. has a message for investors: Things could have been worse.

The leading provider of paid streaming TV lost 970,000 subscribers in the second quarter, according to a statement Tuesday. That was less than half of what Wall Street feared, thanks in large part to a new season of Stranger Things, the service’s most popular English-language series.

That pleased the investors, who sent the share up to 12 percent in extended trading. This quarter, Netflix expects to add 1 million subscribers in the current three-month period. While that’s significantly less than the 1.83 million analysts forecast for the period, it reverses the first-half losses.

Netflix shares surged as high as $225 in extended trading. They closed at $201.63 in New York on Tuesday, down 67 percent this year.

Despite concerns about increasing competition and a possible recession, Netflix remains confident in its position. The company announced that its share of total US television viewership hit an all-time high of 7.7 percent in June.

Management has responded to the drop in subscribers by cutting costs and adjusting its strategy on several fronts. The company plans to launch a lower-priced version of the service with advertising in early 2023, and is testing ways to charge customers for sharing passwords.

“We’re talking about losing 1 million instead of 2 million — our excitement is tempered by the less-bad results,” Chairman Reed Hastings said on a conference call hosted by JPMorgan Chase & Co. analyst Doug Anmuth. “But looking at the Streaming will work everywhere in the future. Everyone pours in.”

According to Netflix, second-quarter revenue increased 8.6 percent to $7.97 billion. That missed Wall Street’s estimate of $8.04 billion, due in part to the strong dollar.

During the quarter, Netflix lost 1.3 million customers in the US and Canada, its largest region, and another 770,000 in Europe, the Middle East and Africa, its second-largest region. These are the sharpest quarterly declines the company has reported in both locations since it began reporting individual results from those markets.

Growth in the Asia-Pacific region offset these declines. Netflix added 1.1 million customers in APAC after cutting prices in India.

Hastings had positioned Netflix as an ad-free alternative to cable TV, but now says commercials are necessary to appeal to people who find the service too expensive. Netflix has raised prices several times and is now one of the most expensive streaming services.

The company will roll out the ad-supported option in a handful of countries first and has just awarded Microsoft Corp. tapped to take over ad sales and technology. Ads start small and look very similar to other video company ads. But Netflix thinks it can be significant, Chief Operating Officer Greg Peters said.

Netflix has also started releasing new episodes of shows in batches, breaking with its tradition of releasing every episode of a season at the same time. It released the drama Stranger Things and the final season of Ozark in two batches.

The batching strategy allows Netflix to extend the lifespan of its biggest shows. If each episode is released at once, most of the viewing occurs in the first few weeks. According to Antenna, the number of people unsubscribing from Netflix has increased by 87 percent over the past year.

The popularity of Stranger Things Season 4 exceeded Netflix executives’ expectations. The supernatural drama has been one of the highest-grossing titles on the service since its debut in 2015, and has made star Millie Bobby Brown one of the most in-demand female actresses in Hollywood.

The release of Stranger Things meant that fans who had Netflix in Q2 wanted to keep the service until the start of Q3 to wrap up the season. The company wants to turn hits like “Stranger Things” into franchises that can outlast each individual show. The show’s creators are developing a spinoff series, and Netflix has also announced plans for a Broadway play.

On Tuesday, Netflix announced that it would acquire Animal Logic, an Australian animation studio that worked on The Lego Movie.

“We’re facing some headwind right now; we navigate through them,” co-chief executive officer Ted Sarandos said on the call. “This company and this team have gone through a lot of changes.”

Total subscribers for the second quarter were 220.7 million, compared to estimates of 220.2 million. Earnings of $3.20 per share beat analysts’ forecasts.

This quarter, Netflix is ​​forecasting revenue of $7.84 billion, just below Wall Street’s estimate of $8.1 billion. The company is projecting earnings of $2.14 per share, compared to estimates of $2.72, and says total membership will hit 221.7 million, also just ahead of estimates. Netflix sees return to growth after losing millions of customers

Fry Electronics Team

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