By Steigrad
Netflix lost nearly 1 million subscribers in the most recent quarter – the latest evidence that the streaming giant is getting picked apart by rivals and is running out of room for growth overseas.
Still, that was better than the 2 million subscriber loss it had predicted. The Los Gatos, California-based streamer said it expects to return to growth in the current quarter, citing the launch of the first part of its hit show, “Stranger Things” Season 4.
Netflix shares, which have fallen roughly 67% this year on worries about future growth, rose 7% in after hours trading.
Last quarter, Netflix shocked the media world when it lost 200,000 subscribers in the first quarter and it predicted the hemorrhaging would continue.
The streaming giant blamed password sharing, the uptick in connected TV adoption and sluggish economic growth, among other things. It said it would crackdown on account sharing and add a lower-priced tier that supports advertising to help pump up its subscriber base, which totals nearly 221 million global subscribers.
The company said it lost 970,000 subscribers in the second quarter, less than Wall Street’s expectation of 1.84 million.
The company assured investors that it has a better grip on retaining subscribers moving forward. “We’ve now had more time to understand these issues, as well as how to best address them,” the company said.
During the quarter, Netflix culled some of its workforce, letting go of 150 workers in May and another 300 jobs in June. The firm also said it slimmed down its real estate footprint, which resulted in approximately $70 million of severance costs and an $80 milion non-cash impairment of certain real estate leases primarily related to rightsizing its office footprint.
The world’s largest streamer said it will continue to focus on content, offering big-budget movies on its service rather than in theaters, and providing all its episodes of new shows all at once, allowing subscribers to binge.
In the second quarter, Netflix said earnings-per-share came in at $3.20.
Netflix noted that the strong US dollar hit revenue, which grew 9% to $7.97 billion. Revenue would have increased by 13% without the foreign exchange impact, the firm said.
Wall Street expected EPS of $2.96 on revenue of $8.04 billion.
In a letter to shareholders, co-CEOs Reed Hastings and Ted Sarandos said season four of “Stranger Things” helped stem some of the subscriber losses.
Only the first seven episodes were released in the second-quarter, but they helped slow down the cancellations as users waited for the final two episodes, released in the current quarter.
The series, starring Millie Bobbie Brown Finn Wolfhard and Winona Ryder, broke the service’s record for the biggest premiere weekend and became the most-watched English-language Netflix show globally, racking up a massive “1.3 billion hours viewed in its first four weeks.”
The co-CEOS said season four also “re-ignited interest in past episodes with season one through three experiencing a greater than five-fold increase in viewing” vs a year ago.
Meanwhile, Netflix said it is shooting to unveil its lower-cost ad-supported tier in early 2023. The news follows Netflix’s decision to partner with Microsoft on the ad-supported offering.
“We’ll likely start in a handful of markets where advertising spend is significant,” the co-CEOs said in their letter to shareholders. “Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one.”
