Netflix gains 2.4 million subscribers, reversing losses

Netflix gains 2.4 million subscribers, reversing losses

Netflix reversed its recent subscriber losses with a summertime gain that management is hoping to build upon with the upcoming launch of a cheaper version of the video streaming service that will include ads for the first time. The company from Los Gatos, California announced Tuesday that it had 2.4 million subscribers in the July-September period. This is a significant improvement on the 1.2 million subscribers lost during the first half due to stiffer competition and rising inflation that’s pinching household budgets.

Netflix now boasts 223 million subscribers, enabling the company to at least temporarily reclaim the mantle as the world’s largest video streaming service. Walt Disney Co. eclipsed Netflix in August when it reported its service had 221 million subscribers, a number that will be updated Nov. 8 when Disney is scheduled to report its summertime results.

“After a challenging first half, we believe we’re on a path to reaccelerate growth,” Netflix predicted in a shareholder letter accompanying the third-quarter results. The increase in subscribers helped Netflix earn $1.4 Billion, or $3. 10 per share, a 4% dip from the same time last year. Revenue rose 6% to $7. 93 billion. FactSet’s analyst projections showed that subscriber gains, earnings per shares and revenue surpassed all expectations.

Netflix’s shares surged nearly 13% after the latest numbers came out. The stock has lost more than half of its value this year, indicating that Netflix’s best days are behind it.

For subscribers, a cheaper ad-supported option

Now that Netflix is growing again, it will be aiming to accelerate the momentum with its first ad-supported plan that debuts in the U.S. and 11 other markets in early November. The new option will cost $7 per month in the U.S., less than half the price for Netflix’s most popular $15. 50-per-month plan without commercial interruptions.

“Netflix still has a lot of room to grow and capture the share in a price-sensitive market,” analyst Haris Anwar said in a sign of renewed optimism about the company’s prospects.

Management is forecasting that Netflix will add 4.5million subscribers in the October-December period, which could indicate that Netflix doesn’t expect the ad-backed plan is to be a hit immediately. This would be Netflix’s largest quarterly gain, but it would still be lower than the 8.3 million subscribers that were added in the same holiday-season period last.

Netflix appears to be trying to shift Wall Street’s long-held focus on subscriber growth by halting to provide forecasts about how many new customers it expects to add each quarter. Management said Tuesday that the quarter’s subscriber projection will be the last. However, it will continue to forecast earnings and revenue to encourage investors to pay more attention.

“Consistent w/others in the industry, [Netflix] is going to be emphasizing the income statement going forward (revenue/profits) and not sub additions as it aims to drive profitability,” analyst Adam Crisafulli of Vital Knowledge said in a report.

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Although investors have generally been enthusiastic about Netflix’s expansion into the advertising market, one major concern is whether the additional revenue generated from selling commercials will be enough to offset the losses from current subscribers who switch to the cheaper option from higher prices they are currently paying. According to FactSet,

Netflix projects revenue of almost $7.8 billion for quarter that covers the holiday season, which traditionally attracts more advertisers. This is slightly less than what analysts had expected. It will result in a 4% increase in revenue if Netflix meets its revenue forecast. By comparison, Netflix’s posted a year-over-year revenue gain of 16% in its 2021 holiday-season quarter. An analysis by research firm Insider Intelligence shows that advertising will make up a large portion of Netflix’s revenue. Next year, Netflix should bring in more than $830 million from advertisers in the U.S. alone, followed by more than $1 billion in the U.S. in 2024, according to Insider Intelligence.

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