Netflix Inc (NFLX.O) on July 19 staved off its worst-case scenario of subscriber losses, recording a nearly 1 million fall from April through June, and expected it would resume customer growth during the third quarter.
Shares, which have tumbled about 67% in 2022 on concerns about the company’s long-term prospects, gained 8% in after-hours trading following the results. Investors took the estimate as a sign that Netflix could still obtain new subscribers despite signs of saturation in its largest market, Canada and the United States, and a rocky global economy.
The world’s biggest streaming service said it wants to introduce its ad-supported option next year. It also cautioned that the strong dollar was hurting revenue registered from subscribers abroad.
Netflix had said in April it was likely to lose 2 million customers in the second quarter, surprising Wall Street and increasing concerns that the streaming TV surge had elapsed abruptly. The losses registered were about half that, at 970,000.
“Our excitement is tempered,” Chief Executive Reed Hastings said in a post-earnings interview posted on YouTube, given that Netflix still defected subscribers. “But looking forward, streaming is working everywhere. … We’re very bullish on streaming.”
Hastings commended new episodes of the science-fiction series “Stranger Things,” the most-watched English-language show in Netflix history, for helping to prevent more defections.
Netflix Projected An Upbeat Q3 2022
Netflix expected customer additions for July through September to reach 1 million, while Wall Street analysts on average were forecasting an estimate of 1.84 million, according to analysts questioned by Refinitiv.
“The stock is up because (analyst) downgrades all made a big deal out of slowing growth,” Wedbush Securities analyst Michael Pachter said, noting that Netflix was lowering costs and expected free cash flow to increase significantly in 2023.
Shares of other streaming companies jumped modestly after the Netflix report. Roku Inc (ROKU.O) stock grew 2.7% while Paramount Global (PARA.O) and Walt Disney Co (DIS.N) each gained about 1%.
After years of rapid growth, Netflix’s fortunes changed as rivals including Warner Bros Discovery, Disney, and Apple Inc (AAPL.O) invested massively in their own streaming services.
Netflix lost 1.3 million customers in Canada and the United States in the second quarter, and 770,000 in the Middle East, Europe, and Africa. That was neutralized by a gain of about 1.1 million members in the Asia/Pacific region.
Buy Bitcoin NowIn a letter to shareholders on Tuesday, Netflix said it had further reviewed the recent slump, which it blamed on a variety of factors including competition, password-sharing, and a weak economy. The letter reads:
“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience.”
One way the company intends to gain more from members is by restricting password-sharing. The company is examining two options in Latin America.
It also is working to enhance the popularity of “Stranger Things” and striving to develop some of its major successes into franchises.
Netflix continues to be the main streaming service with close to 221 million global paid subscribers. Co-CEO Ted Sarandos said the company still sees room for “enormous” expansion by bringing in most of the billions of people globally who have yet to sign up.
Sarandos stated:
“We have some headwinds right now, and we’re navigating through them.”
For April through June, earnings per share stood at $3.20, before the Wall Street consensus of $2.94.
Netflix said the strong U.S. dollar hurt revenue, which rose 9% to $7.97 billion, below analyst forecasts of $8.04 billion. Revenue would have climbed by 13% if not for the foreign exchange impact, the company said.
Last week, Netflix disclosed Microsoft Corp (MSFT.O) as its technology and sales partner for the ad-supported offering.
