Netflix Beats Estimates to Reverse Subscriber Slump, Says Ad-Supported Plan to Attract 4.5 Million Subscribers

Netflix reversed customer losses and provided a slightly more bullish outlook than Wall Street expected, projecting a new ad-supported streaming option would help attract 4.5 million subscribers by year's end.

From July through September, Netflix attracted 2.4 million new subscribers worldwide, more than double the 1.07 million consensus forecast of analysts polled by Refinitiv.

During the quarter, Netflix released the final episodes of sci-fi hit Stranger Things plus serial-killer series Dahmer – Monster: The Jeffrey Dahmer Story, which became one of Netflix's most-watched series of all time.

The streaming giant is working to kick-start membership growth after a sudden decline in the first half of the year, when the company's subscriber base shrunk by 1.2 million amid a rocky global economy and growing competition for online video viewers. Netflix now has a total of 223.1 million subscribers around the world.

Most established services have stopped growing in the US, where the market has reached maturity. Newer entrants, such as Paramount Global's Paramont+, are picking up market share thanks to live sports programming.

In its quarterly letter to shareholders, Netflix noted that rival media companies are losing money as they try to attract streaming viewers.

“Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard,” the letter said.

Netflix estimated that competitors would end 2022 with combined operating losses of “well over $10 billion (roughly Rs. 8300 crore),” compared with Netflix's annual operating profit of $5 billion (roughly Rs. 41,500 crore) to $6 billion (roughly Rs. 50,000 crore).

For the third quarter, Netflix topped Wall Street projections with revenue of $7.9 billion (roughly Rs. 65,500 crore), up 6 percent from a year earlier. Earnings were $3.10 (roughly Rs. 260) per share.

The company's forecast of 4.5 million customer pickups by the end of 2022 came in slightly ahead of Wall Street estimates, which had averaged 4.2 million. For the fourth quarter, Netflix is projecting revenue of $7.8 billion (roughly Rs. 64,700 crore) – a sequential decline it blamed on the strong value of the US dollar.

Netflix is launching a $7-per-month (roughly Rs. 600) streaming plan with advertising in early November to attract cost-conscious customers, a move executives had long resisted. Walt Disney, Warner Bros Discovery and other companies also offer, or plan to offer, ad-supported options in the battle for audiences.

While Netflix is making various changes to propel growth, the company said it remained committed to releasing all episodes at once to allow binge watching.

“We believe the ability for our members to immerse themselves in a story from start to finish increases their enjoyment but also their likelihood to tell their friends, which then means more people watch, join and stay with Netflix,” the company said.

A new season of British royalty drama The Crown and a sequel to 2019 movie Knives Out also will be released during the fourth quarter.

© Reuters 2022