Netflix loses subscribers, but stops the bleeding

By Frank Pallotta, CNN Business

New York (CNN Business) – Netflix reported Tuesday that it lost 970,000 subscribers in the second quarter of 2022 — a number far lower than its own forecasts, which had projected that the streaming giant would lose two million subscribers.

The company also said it would add another one million subscribers in the third quarter, a number that was slightly lower than Wall Street expectations. But investors were clearly happy with the results, and Netflix shares jumped as much as 8% on Tuesday in after-hours trading.
After disclosing in April that it lost 200,000 subscribers, leading to a steep drop in its share price, all eyes were on Netflix Tuesday, with Wall Street, Hollywood and the media world all hyper-focused on its subscription numbers. The company’s shares had dropped dramatically during a nightmare year.

But Netflix’s second quarter profit came in at $1.4 billion, up from $1.3 billion in the year-earlier quarter. Revenue jumped roughly 8.6% year over year, to $7.9 billion.

Netflix’s biggest subscriber loss came from its biggest market, the United States and Canada, where the streamer said it lost 1.3 million users in the second quarter. But that was offset by increased subscriptions elsewhere.

“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience,” the company said Tuesday in its letter to investors. “We’re in a position of strength given our $30 billion-plus in revenue, $6 billion in operating profit last year, growing free cash flow and a strong balance sheet.”
Running back up the hill

Netflix (NFLX) needs this type of result right now. The most recent quarter showed the biggest subscriber loss in its 25-year history, but even that could be considered a win for the company right now that the numbers came in much lower than expected.

In April’s earnings report, the company disclosed that it lost subscribers for the first time in more than a decade. Its stock tumbled, hundreds of employees were laid off and doubts ran rampant about the company’s future — and about the streaming business as a whole.

On Tuesday, those concerns all but vanished as investors were pleasantly surprised that the losses weren’t worse, and cheered with the company’s projection that it will see growth in the third quarter.

One thing that likely helped the Netflix subscriber count from falling further in the second quarter: The fourth season of its science fiction horror series “Stranger Things,” which was wildly popular.

“In its first four weeks, ‘Stranger Things’ season four generated 1.3 billion hours viewed, making it our biggest season of English [language] TV ever,” the company said.

The streamer’s results Tuesday still showed losses for a company that needs to grow. Yet, after the last hellish months for Netflix, the company and really all of streaming can breathe a sigh of relief. And the company got some breathing room to right the ship without the pressures of a plummeting stock or negative press.

Long-term solutions
On Tuesday, Netflix explained to investors how it plans to keep the company on the right track.
“In the near term, a key priority to re-accelerate revenue growth is to evolve and improve our monetization,” Netflix said in its shareholders letter.

In the early days of streaming, Netflix kept its “pricing very simple with just one plan level” before introducing multiple pricing tiers in 2014, the company wrote. Going forward it will “focus on better monetizing usage through both continued optimization of our pricing and tiering structures.”

That includes a new, lower-price tier that will be supported by advertisements, which will “complement our existing plans.” The company said it expects to launch the plan “around the early part of 2023.”

It was reported last week that Netflix would partner with Microsoft (MSFT) on building this new ad tier.

“They are investing heavily to expand their multi-billion advertising business into premium television video, and we are thrilled to be working with such a strong global partner,” Netflix said. “Our advertising business in a few years will likely look quite different than what it looks like on day one.”

Netflix also spoke about clamping down on password sharing, saying that it’s in the “early stages of working to monetize the [more than] 100 million households that are currently enjoying, but not directly paying for, Netflix.”

“We know this will be a change for our members,” the company said. “Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023.”


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