Netflix loses nearly a million subscribers, but profits rise

Netflix lost nearly a million subscribers in the spring amid increased competition and runaway inflation that is squeezing household budgets, increasing the urgency behind the video streaming service’s efforts to launch a less expensive with commercial interruptions.

The April-June contraction of 970,000 accounts, announced as part of Netflix’s second-quarter earnings report on Tuesday, is by far the largest quarterly subscriber loss in the company’s 25-year history. It could have been much worse, however, given that Netflix management released an April forecast calling for a loss of 2 million subscribers in the second quarter.

The less severe loss of subscribers, combined with prospects calling for a return to growth in the July-September period, helped Netflix’s beat stock rise 7% in extended trading after the figures were released.

Not impressed

“The market seems to be in a “everything is better than feared” type mood, which will help NFLX, but it’s hard to look at the report/guide and be very impressed (which is why we will not pursue it in the after hours),” Adam Crisafulli of Vital Knowledge said in a research note.

Netflix’s April-June decline follows a loss of 200,000 subscribers in the first three months of the year, marking the first time Netflix’s total subscriber count has declined in consecutive quarters since that its transition from offering DVD rentals by mail to video streaming began 15 years ago. .

The loss of nearly 1.2 million subscribers in the first half of this year also provides a starting contrast to the pandemic-driven growth Netflix enjoyed in the first half of 2020, when its streaming service attracted nearly 26 million subscribers.

Despite the slowdown, Netflix still earned $1.4 billion, or $3.20 per share, in the quarter, a 6% increase over the same period last year. Revenue increased 9% from the same period last year to nearly $8 billion.

Expected rebound

Netflix ended June with 220.7 million subscribers worldwide. far more than any of its newer competitors such as Walt Disney Co. and Apple. And in a sign of hope, Netflix management has predicted that its service will add around 1 million subscribers in the July-September period, signaling that the worst of its crisis may be over.

Although Netflix’s subscriber losses in the spring were not as severe as investors and management feared, the downturn served as a grim reminder of the challenges now facing the Los Gatos, Calif., company after a decade of unbridled growth.

Netflix’s share price has fallen nearly 70% so far this year, wiping out an estimated $180 billion in shareholder wealth. Since then, other video streaming services have made great strides in attracting viewers, with Apple winning accolades for its award-winning lineup of TV shows and movies, while Disney’s popular lineup of family titles continues to gain traction. ground.

At the same time, Netflix has raised prices to help pay for its own original programming, just as the highest rates of inflation in 40 years have led consumers to cut spending on discretionary items such as entertainment.

These factors help explain Netflix’s announcement in April that it will crack down on the widespread sharing of subscriber passwords and take another once despised step by offering a cheaper tier of its service that will include commercial disruptions. Without providing further details, Netflix said on Tuesday that the ad-supported plan and crackdown on password sharing will begin early next year. The company did not specify the cost of the streaming option with ads.

Netflix took a step closer to implementing the ad-supported option last week when it announced it would team up with Microsoft to deliver the ads.

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