Netflix ends streak of subscriber declines and beats on profits, shares jump 15%

Netflix ends streak of subscriber declines and beats on profits, shares jump 15%

Netflix Inc. added more than 2 million subscribers in the third quarter after stumbling through 2022 with two consecutive quarterly declines, a rebound that sent shares up more than 15% in after-hours trading on Tuesday.

NetflixNFLX,
-1.73%
reported a net gain of 2.41 million subscribers in the third quarter, while analysts expected an average of 1.1 million net additions, according to FactSet. This follows a drop of around 200,000 subscribers in the first quarter and nearly a million in the second quarter, which led the company to plan massive changes, including a cheaper, publicly funded streaming tier. advertising that should arrive in the fourth quarter.

In a letter to shareholders, Netflix executives said they expect 4.5 million new subscribers to join in the fourth quarter, with revenue expected to reach $7.78 billion from 7.71 billion dollars a year ago. Analysts averaged revenue of $7.97 billion and a net gain of 4 million subscribers for the fourth quarter, according to FactSet.

“After a challenging first half, we believe we are on track to accelerate growth,” the executives wrote in the letter.

The news sent Netflix shares up about 15% in after-hours trading after the earnings release, after closing 1.7% lower at $240.86. The extent of subscriber declines has threaded Netflix shares, which have sagged 60% so far this year while the broader S&P 500 index SPX,
+1.14%
decreased by 22.8%.

The streaming video giant’s slowdown after a pandemic-spurred surge has only intensified pressure from competing streaming services Walt Disney Co. DIS,
+1.18%,
Apple Inc.AAPL,
+0.94%,
Amazon.com Inc. AMZN,
+2.26%,
Warner Bros. Discovery Inc. WBD,
+4.55%,
Comcast Corp. CMCSA,
-0.23%
and Paramount Global PARA,
+1.56%.

That hasn’t stopped Netflix execs from taking a shot at their streaming rivals in terms of profitability. “Our competitors are investing heavily to drive subscribers and engagement, but it’s hard to build a large, successful streaming business – we estimate they’re all losing money, with combined operating losses in 2022 well greater than $10 billion, compared to Netflix’s $5-6 billion annual operating profit,” Netflix executives said in the shareholder letter.

A drastic change in the video streaming climate, in which Disney overtook Netflix as the market leader in July, has prompted a radical transformation for Netflix. Last week, the company announced its long-awaited ad-supported tier, which debuts November 3 in the US for $6.99 per month. Another 11 countries, including Canada and Mexico, will get the service by November 10. The company has also promised a crackdown on shared accounts and is pushing games forward.

The ad-supported level directly recognizes the competition and Netflix’s need to “adapt to the new normal in the streaming landscape,” Insider Intelligence analyst Ross Benes said in a note on Tuesday.

Read more: Netflix has lost its streaming crown to Disney. Here’s how leaders expect to win him back.

Netflix reported third-quarter earnings of $1.4 billion, or $3.10 per share, from $3.16 per share a year ago. Netflix’s revenue improved to $7.93 billion in the quarter from $7.48 billion in the same period a year ago, but missed lowered expectations. Analysts polled by FactSet had expected earnings of $2.14 a share on sales of $7.84 billion, estimates that had fallen in recent days.

Tuesday’s results follow a serious personal reflection by Netflix executives on how to stem a drop in visits among subscribers that led to cancellations. Co-CEO Reed Hastings consulted with staff to find ways to get subscribers to visit the platform more frequently, according to reports from The Wall Street Journal and Bloomberg News.

One such strategy is to crack down on multiple users sharing the same account. In the shareholder letter, Netflix said it had “landed a thoughtful approach to monetizing account sharing and we will begin rolling it out more widely from early 2023.”

“After listening to consumer feedback, we’re going to offer the option for borrowers to transfer their Netflix profile to their own account, and for sharers to more easily manage their devices and create sub-accounts (“additional member”), s ‘they want to pay for your family or friends,” the letter states. “In countries where our ad-supported plan is less expensive, we expect the profile transfer option for borrowers to be particularly popular .”

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