Disaster averted on Netflix.
The streaming giant said in its earnings report on Tuesday that it lost nearly 1 million subscribers in the second quarter. It’s the biggest customer defection in the company’s history, but far short of the 2 million forecast during its disappointing first-quarter report in April.
When Netflix announced that it lost 200,000 subscribers in the first quarter and expected to lose many more in the second, it suggested to many in Hollywood and on Wall Street that the days of endless growth in the streaming business were over.
The company still had about three months to go, but its revenue rose 9% to $7.9 billion, a number that would have been higher if the dollar’s value had not pushed the value of currencies around the world down. Overall, Netflix co-CEO Reed Hastings called it a “less bad result.” He added that “it’s hard to lose 1 million customers and call it a success.”
Netflix, which now has about 220.7 million subscribers worldwide, told investors it could add 1 million back in the coming quarter. And Hastings remains optimistic about the future of streaming. “This is the end of Linear TV in the next five, 10 years,” he said Tuesday during a taped earnings call after trading closed.
In a letter to shareholders, Netflix said it will keep its focus on providing streaming content to customers and not worry about other potential revenue streams, as its primary competitors do.
“This freedom means we can offer larger movies directly to Netflix without the need for extended or exclusive theatrical windows, and let members watch TV if they wish, without having to wait for a new episode to drop each week. Without doing,” the company said. “This focus on choice and control for members impacts all aspects of our strategy, which we consider to be a significant long-term business advantage.”
Netflix has spent the past three months adjusting its business to better meet the challenges it expects to face for the rest of the year. The company laid off about 450 employees. (Its had $70 million in severance costs as a result of the downsizing.) In April, it announced that it would introduce a less expensive subscription tier that would feature advertising — its long-held approach to never placing ads on its service. reverse the stance Netflix intends to lower its low-cost advertising levels in the early part of 2023 in “a handful of markets where ad spending is significant,” one growth analyst is cautiously optimistic.
“Beyond additional subscriptions, ads will provide an upside to Netflix in the form of a new revenue stream from brands who are eager to reach the platform’s addressable audience,” said Mike Proulx, Forrester’s vice president. “But growing its advertising business will take time.”
And Netflix said it would begin more forcefully cracking down on password sharing to effectively monetize the 100 million users who Netflix said used its service without paying for it. . On Tuesday, Netflix said it has introduced two approaches to finding out which one is more effective in Latin America. One allows customers to “add additional members” and the other allows users to “add households” for an additional $3 per month.
“Not only was the loss not that bad, but expecting growth in the third quarter, even if it’s a modest growth, is probably quite encouraging for people,” said Richard Greenfield, managing director of Lightshade Ventures. Cash flow growth in -2023 will be the most important news of the quarter.
“They’re basically saying everyone else in the industry is going to lose billions of dollars, not only are they going to make money in 2022, but they’re going to make a lot of money in 2023 and beyond,” Greenfield said. “
In addition to its commercial issues, Netflix received fewer Emmy nominations this month than its primary rival, HBO, despite featuring more programming than the cable network and its streaming offshoot, HBO Max. HBO garnered 140 nominations for Netflix’s 105, a reflection of the difficulty of consistently producing quality, esoteric entertainment.
Wall Street turned sour on the streaming giant after its first-quarter report, with Netflix shares up 46% since April and down close to 70% from the start of the year. Netflix shares rose more than 5% after Tuesday’s trading.
In the second quarter, Netflix lost 1.3 million subscribers in the United States and Canada, compared to a loss of 400,000 for the same period in 2021. It grew revenue by 10% and said customer retention had improved during the quarter.
Revenue grew 23% in the Asia-Pacific region, where the company added 1.1 million customers. In Latin America, subscriptions remained flat, but revenue increased 19% from a year ago.
The service was particularly buoyed by the strong performance of Season 4 of “Stranger Things,” which Netflix said had clocked 1.3 billion hours, the most for an English-language show. It also benefited from renewed interest in Kate Bush’s “Running Up That Hill” and Metallica’s “Master of Puppets” which were featured on the show.
Netflix’s film advantage was more modest. “We are making good progress in the film,” the letter said. Adam Sandler basketball movie “Hustle” generated the most user interest this quarter, clocking 186 million hours. “Senior Year” with Rebel Wilson grabbed user attention for 161 million hours. The company is investing more in animation, announcing on Tuesday that it has acquired Australian animation studio Animal Logic.
“I think it’s really important that in tough economic times, consumers see that Netflix has tremendous value,” said other co-CEO, Ted Sarandos, in response to a question about how the company sees itself in an economic downturn. Is. He pointed to the movie “The Gray Man,” which will become available on the service Friday.
“It’s a huge, big-budget action movie that usually has people going out and spending a lot of money to see it, and it’s going to premiere on Netflix,” he said. (The film was released in about 450 theaters last week.)
Despite upbeat forecasts for the third quarter, some analysts are concerned that Netflix’s series and movies coming out in the rest of the year will be impacted by the comparison of its competitors’ offerings.
“For me, the bigger issues are the quality of the content,” said Matthew Harrigan, an analyst at Benchmark. He pointed to HBO, which will be releasing its “Game of Thrones” prequel, “House of the Dragon” in August, while Amazon is unveiling “Lord of the Rings: The Rings of Power” in September.
“‘The Crown’ is probably the most high-profile Q4 show they have on Netflix,” he added.