Netflix CEO says ‘thank God we’re done with shrinking quarters’ after first growth of 2022 sends stock soaring

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Netflix Inc added more than 2 million subscribers in the third quarter for two consecutive quarterly declines in 2022, a rebound that sent shares more than 15% in post-Tuesday trading.

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According to FactSet, net profit of 2.41 million subscribers was reported in the third quarter, while analysts had forecast an average of 1.1 million net additions. This follows a drop of nearly 200,000 subscribers in the first quarter and nearly a million in the second quarter, which led the company to massive changes planned, with a cheaper, ad-supported streaming tier set to arrive in the fourth quarter. is included.

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In a letter to shareholders, Netflix executives said they expected the addition of 4.5 million new subscribers in the fourth quarter, increasing revenue forecast to $7.78 billion from $7.71 billion a year ago. According to FactSet, analysts forecast average revenue of $7.97 billion and net customer profit of $4 million for the fourth quarter.

“After a challenging first half, we believe we are on our way to accelerate growth,” the officials wrote. Letter,

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“Thank God we’re done with shrinking quarters,” Netflix co-CEO Reed Hastings joked of core subscriber growth during a video interview late Tuesday. He treated the next two quarters as a welcome respite but just a start. Co-CEO Ted Sarandos noted the popularity of “Stranger Things” Season 4 and its recent Jeffrey Demer series.

Shares of Netflix were up nearly 15% in after-hours trading after the results were released, closing down 1.7% at $240.86. The pull of subscriber declines has filmed shares of Netflix, which have swung 60% so far this year, while the broader S&P 500 index SPX,
22.8% declined.

The slowdown of the streaming-video giant following a pandemic-driven growth has only increased pressure from rival streaming services at The Walt Disney Co.
Apple Inc. AAPL,
+0.94%, Inc. AMZN,
Warner Bros. Discovery Inc. WBD,
Comcast Corp. CMCSA,
and Paramount Global Para,

That didn’t stop Netflix executives from taking a pot shot at streaming rivals over profitability. “Our competitors are investing heavily to grow customers and engagement, but building a large, successful streaming business is tough – we estimate they are losing all that money, with a combined 2022 operating loss of more than $10 billion. , versus Netflix’s $5 [billion] $6 billion annual operating profit,” Netflix executives said in the shareholder letter.

Netflix Chief Financial Officer Spencer Newman said the company will live up to $17 billion in “zip codes” for content spending this year.

A dramatic shift in the video-streaming environment, in which Disney overtook Netflix as the market leader in July, prompted a radical shift at Netflix. Last week, the company announced its long-awaited ad-supported tier, which debuts in the US on November 3rd for $6.99 per month. 11 other countries including Canada and Mexico will get this service till November 10. [The dozen countries account for more than half of Netflix’s total revenue.] The company has vowed to ban shared accounts as well, and is moving on to gaming. on Tuesday TechCrunch Interrupted At the conference, Netflix vice president of game development Mike Verdu said the company is considering a cloud-gaming service.

The ad-supported tier acknowledges direct competition and the need for Netflix to “adapt to the new normal of the streaming landscape,” insider intelligence analyst Ross Baines said in a note late Tuesday.

For more: Netflix loses its streaming crown to Disney. Here’s how execs hope to win it back.

Netflix announced third-quarter earnings of $1.4 billion, or $3.10 per share, compared to $3.16 per share a year ago. Netflix’s revenue rose to $7.93 billion in the quarter from $7.48 billion in the same period a year ago, but fell short of expectations. Analysts polled by FactSet were expecting earnings of $2.14 per share on sales of $7.84 billion, an estimate that had declined in recent days.

Tuesday’s results follow some serious self-reflection among Netflix executives about how a drop in visits among subscribers has prompted cancellations. According to reports, Co-CEO Hastings has consulted with employees to find ways to get customers to visit the platform more often. wall street journal And bloomberg news,

One such strategy is cracking down on multiple users sharing the same account. In the shareholder letter, Netflix said it has “landed on a thoughtful approach to monetizing account sharing and we will begin rolling it out more widely in early 2023.”

Read more: Netflix will crack down on password sharing next year – here’s how it will work

“After hearing consumer feedback, we are going to offer borrowers the ability to transfer their Netflix profiles to their accounts, and shareholders can more easily manage their devices and sub-accounts (‘Additional Members’). If they wish to pay for family or friends,” the letter said. “In countries with our low-cost ad-supported plan, we expect the profile transfer option to be particularly popular for borrowers “

The next few years of the streaming market will largely be defined by “battling price and content,” Hastings said during the video call. “It’s about competitive excellence and straight-up execution.”

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