Netflix reported on Tuesday that it suffered a second straight quarter of customer losses as the steaming giant combats increased competition from studio rivals and consumer belt tightening in the face of inflation, but the 970,000 subscriber loss was still better than Wall Street expected.
Crucially, Netflix is projecting 1 million subscriber additions in the third quarter, adding to the 220.67 million subscribers globally. Looking even further ahead, the company said it hopes to unveil its ad-supported tier in early 2023 — a lower-cost service that some analysts believe could add four million new subscribers in the U.S. and Canada next year.
“We’re executing really well on the content size with names like ‘Ozark,’ ‘Stranger Things,’ lots of titles,” said co-Chief Executive Reed Hastings on an earnings call. “We’re talking about losing one million instead of losing two million, so our excitement is tempered by the less bad results. But, looking forward, streaming is working everywhere, everyone is pouring into it. It is definitely the end of linear TV.”
Netflix’s operating income for the quarter was $1.6 billion, with net income at $1.4 billion. The company reported diluted earnings per share of $3.20 on $7.97 billion in revenue. Wall Street was projecting a profit of $2.96 per share on $8.04 billion in revenue.
Wall Street cheered the better-than-expected subscriber numbers, sending shares up 9% in after-hours trading at time of publishing. Netflix stock cratered 70% this year to wipe out billions of dollars in market value — unleashing a wave of fear that studios might need to reconsider prioritizing streaming over legacy businesses like television and theaters.
The streamer warned in April that it would lose two million global subscribers during the second quarter, after shedding 200,000 during the first three months of the year. Netflix blamed the first declines in more than a decade on increased competition from Hollywood rivals, password sharing and consumer belt tightening in the face of inflation.
Streaming services led by Netflix pushed total global content spend past $220 billion in 2021, up 14% year over year, according to Ampere Analysis. The chief executives have already made their case to investors that they are focused on building out streaming services, and in the process more or less taking their eyes off traditional revenue drivers such as television or cable advertising.
Netflix is still the industry’s pacesetter — able to charge an industry-high $15.49 a month for ad-free viewing of hit shows like “Stranger Things” and “Squid Game.” Both have racked up more than 3 billion hours of viewership, and that’s a key measurement considering the company plans to launch an advertising-supported tier in 2023 (previously, it had said it would do so before the end of this year).
Viewership for “Stranger Things 4” made it the most-watched English language original series in its first month of release, according to Netflix’s own data. It was calculating to release the first seven episodes during the second quarter, and the two concluding shows during the third quarter, thereby increasing new subscribers while mitigating the number of cancellations during one financial period.
Indeed, Netflix has a huge jump start over rivals in terms of subscribers since it pioneered the idea of streaming video content in 2007. As of last quarter, Disney+, launched in late 2019, is in second with 137.7 million, and Warner Bros. Discovery’s to-be-combined HBO Max and Discovery+ totals 101 million (not including the overlap of subscribers who have both services).
Paramount+, home to “Star Trek” and other former ViacomCBS fare, has 62 million subscribers. Hulu, controlled by Disney while Comcast owns 30%, has 45 million. And NBCUniversal’s Peacock, which includes a free, ad-supported tier, had 28 million monthly active accounts and 13 million paid subscribers.
Warner Bros. Discovery is the next major studio to report earnings and streaming subscriber numbers on August 1.