Netflix catches subscriber drop streak and beat earnings, stock rises 15%

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

Netflix NFLX,
-1.73%
Analysts reported net additions of 2.41 million in the third quarter, with analysts forecasting an average of 1.1 million net additions, according to FactSet. That, after a drop of nearly 200,000 subscribers in the first quarter and nearly a million in the second quarter, has led the company to plan major changes, including a cheaper, ad-supported streaming tier, to reach 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 forecast to rise to $7.78 billion from $7.71 billion a year ago. Analysts estimated average revenue of $7.97 billion and net subscriber gains of 4 million for the fourth quarter, according to FactSet.

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

The news gained nearly 15% after Netflix shares fell 1.7% to $240.86 in after-hours trading after the results were announced. Increasing subscriber declines fill Netflix stock, which has lost 60% so far this year, as the broader S&P 500 index SPX,
+1.14%
decreased by 22.8%.

The video streaming giant’s decline following a pandemic-induced surge has only intensified the pressure from rival streaming services at Walt Disney Co. HER
+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 MONEY,
+1.56%.

That hasn’t stopped Netflix executives from pottering their streaming rivals over profitability. “Our competitors are investing heavily to increase subscribers and engagement, but building a large, successful streaming business is difficult – we estimate they are all losing money in 2022, with total operating losses exceeding $10 billion. Netflix executives said in their shareholder letter, Netflix’s annual revenue of $5 billion He said he had an operating profit of $6 billion.

A dramatic shift in the video streaming landscape, where Disney surpassed Netflix as market leader in July, has led to a radical shift at Netflix. Last week, the company announced its long-awaited ad-supported tier, and it launched in November. 3. For $6.99 per month in the US, 11 more countries, including Canada and Mexico, will receive the service by November. 10. The company also promised to hold tight to the shared accounts and continue to play games.

In a note late Tuesday, Insider Intelligence analyst Ross Benes directly acknowledges the ad-supported tier, competition and Netflix’s need to “adapt to the new normal of the streaming landscape.”

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

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

Tuesday’s results follow a serious self-assessment from Netflix executives on how to avoid the drop in visits leading to cancellations among subscribers. According to reports from The Wall Street Journal and Bloomberg News, Co-CEO Reed Hastings consulted with staff to find ways to get subscribers to visit the platform more often.

One such strategy is to crash multiple users sharing the same account. In its shareholder letter, Netflix said it has “taken a thoughtful approach to monetizing account sharing and we will begin rolling it out more broadly from early 2023.”

“After listening to consumer feedback, we will offer borrowers the ability to transfer their Netflix profile to their own account, and those who share it to more easily manage their devices and create sub-accounts (“extra members”) who want to pay for family or friends,” he said. “We expect the profile transfer option for borrowers to be particularly popular in countries where we have a low-priced ad-supported plan.”

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