Netflix reversed previous member losses with a summertime increase, which management hopes to expand on with the imminent debut of a lower-cost version of the video streaming service, which will contain advertisements for the first time.
The Los Gatos, California-based corporation announced Tuesday that it added 2.4 million subscribers between July and September, reversing a 1.2 million-customer loss in the first half of the year due to stronger competition and increasing inflation that is straining household budgets.
Netflix now has 223 million subscribers, allowing the business to reclaim the title of world’s largest video streaming provider, if only momentarily. Walt Disney Co. surpassed Netflix in August when it declared 221 million users, a figure that will be revised Nov. 8 when Disney reports its midsummer 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 also contributed to Netflix earning $1.4 billion, or $3.10 per share, a 4% decrease from the same period last year. Revenue increased 6% year on year to $7.93 billion. FactSet analyst predictions for subscriber growth, profits per share, and sales were all exceeded.
Netflix’s stock jumped over 13% after the latest earnings report was released. Nonetheless, the stock has lost more than half its value this year, indicating concerns that Netflix’s greatest 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,” Investing.com analyst Haris Anwar said in a sign of renewed optimism about the company’s prospects.
In a possible sign Netflix isn’t expecting the ad-backed plan to be an immediate hit, management is forecasting it will add 4.5 million subscribers during the October-December period. Although that would be Netflix’s biggest quarterly gain this year, it would still be down from the 8.3 million subscribers added during the same holiday-season period last year.
Netflix is apparently hoping to de-emphasize Wall Street’s long-running focus on its subscriber growth by stopping to provide forecasts about how many customers it expects to add from one quarter to the next. Management disclosed Tuesday that its subscriber projection for the current quarter will be its last, but that it will continue to predict earnings and revenue in hopes investors will pay more attention to those figures.
“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.
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.
Netflix is projecting revenue of nearly $7.8 billion for the quarter covering the holiday season that traditionally spurs more advertisers, slightly below what analysts had been anticipating, according to FactSet. If Netflix delivers on its revenue forecast, it will translate into a 4% increase from the same time last year. By comparison, Netflix’s posted a year-over-year revenue gain of 16% in its 2021 holiday-season quarter.
But an analysis by the research firm Insider Intelligence foresees advertising contributing a significant chunk 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.
