One million subscriber loss is less than 2 million prediction, as streaming giant offsets investor worry with forecast to add 1 million in Q3
Netflix has reassured Wall Street after its subscriber loss in the second quarter was less than expected, and it forecast subscriber growth in the third quarter.
The streaming giant had alarmed investors in April when it confirmed that 200,000 people had left it in the first three months of the year, and it warned another two million subscribers were likely to leave in the three months to July.
The market had reacted badly, this was its first loss of subscribers in nearly ten years and reflected the amount of streaming competition Netflix now faces from the likes of Disney, Apple, Amazon and HBO.
But Netflix on Tuesday has now revealed that its actual subscriber loss in Q2 was less than expected.
Netflix confirmed that 970,000 subscribers had left the service in the three months to July. And it predicted it would return to customer growth during the third quarter, by adding one million subscribers.
On the financial results side, Netflix posted a net profit of $1.4bn, up from $1.3bn in the same year ago quarter.
Revenue meanwhile was up 9 percent at $8bn, from $7.3bn in the same year-ago quarter.
Shares in Netflix, which have fallen roughly 67 percent this year on concerns about the company’s long-term prospects, rose 8 percent in after-hours trading following the results.
Netflix is the world’s largest streaming service with nearly 221 million global paid subscribers.
Last week it announced plans to launch its ad-supported service next year in partnership with Microsoft.
“Our excitement is tempered,” CEO Reed Hastings was quoted as saying by Reuters in a post-earnings interview posted on YouTube, given that Netflix still lost subscribers. “But looking forward, streaming is working everywhere. … We’re very bullish on streaming.”
Hastings credited new episodes of the science-fiction series “Stranger Things,” the most-watched English-language show in Netflix history, with helping to stave off more defections.
Not only is Netflix contending with added competition, but it is struggling to maintain the pace of growth it had seen during the pandemic.
Netflix added a huge 18.2 million subscribers in 2021 (during the pandemic), about half the number who signed up in 2020.
The arrival of an advert-supported subscription plan is part of its process to grow its revenue streams, and reduce costs.
In March Netflix had raised prices in certain countries, including the UK and Ireland, for the second time in less than 18 months.
Another cost cutting exercise is stopping users sharing their passwords with family and friends.
In March last year Netflix warned it was testing account passwords, as it sought to clampdown on the revenue losing problem of password sharing.
Then in March 2022, Netflix began testing new tools to crackdown on password sharing between people who don’t live in the same household.
The streaming giant began testing the crackdown in three countries, namely Chile, Costa Rica and Peru.
Forrester VP and research director Mike Proulx noted the increased competition facing Netflix, and how Stranger Things likely reduced the severity of the company’s forecasted losses.
“Netflix once disrupted the entertainment space but is now the one being disrupted by competitive streaming platforms that have been aggressively scaling up,” said Proulx.
“While bad for Netflix, this is good for consumers who now have more options and choices for streaming content,” he added. “However, what continues to differentiate one streaming service from another is compelling proprietary content offered at a fair value. No doubt the universal success of Stranger Things season 4 helped lessen the severity of Netflix’s forecasted losses.”
“The competition has also forced Netflix to reverse its longtime stance against ads,” noted Forrester’s Proulx. “When the company launches its ad-supported tier in early 2023, it will provide cost relief to its ad-tolerant users who are feeling the price pinch while also attracting new, price-conscious users who have been reluctant to pay a premium price point.”
“Beyond additional subscriptions, ads will also provide an upside to Netflix in the form of a new revenue stream from brands that are eager to reach the platform’s addressable audience,” Proulx concluded. “But scaling its ad business will take time.”
Forrester highlighted the fact that 41 percent of UK online adults currently subscribe to Netflix and plan to keep paying what they pay now to keep their experience ad-free.
That said, Forrester also found that 9 percent of UK online adults who currently subscribe to Netflix, plan to cancel their subscription in the next three months.
Meanwhile 9 percent of UK online adults who currently subscribe to Netflix would switch to Netflix with ads if it were offered at a lower price.
Looking at Europe, 45 percent of European online adults (UK, France, Germany, Spain, Italy, Netherlands, Sweden) have purchased a video streaming service in the past 12 months.