Netflix reversed the loss of subscriptions from the past few months and added 2.4 million new subscribers worldwide in the third quarter, more than double what analysts expected. The company also projected more growth into the future, reassuring Wall Street as it prepares to offer a new, cheaper subscription plan with ads.
Netflix shares rose 14% in post-trade trading on Wednesday, driven in part by the streaming giant’s projection of gaining 4.5 million customers in the fourth quarter. The company’s shares, favorites of investors during its fast-growing years, have dropped nearly 60% this year before the earnings release.
“Netflix’s impressive numbers show that the company’s growth story is far from over,” said Haris Anwar, analyst at Investing.com.
During the quarter, Netflix released the final episodes of the sci-fi hit “Stranger Things” as well as the series “Dahmer: An American Cannibal,” which became the fourth most-watched series in the platform’s history.
Netflix also mentions the third season of the series “Tuning” as one of its hit releases in the period. According to the company, the Brazilian production was a success in the country and generated more than 38 million hours watched on the platform.
The streaming giant is working to boost subscription growth after a sudden slump in the first half of this year, when the company’s subscriber base shrank by 1.2 million amid a shaky global economy and growing competition between media companies. . Netflix now has a total of 223.1 million subscribers worldwide.
Most streaming services have stopped growing in the United States, where the market has reached saturation. New entrants like Paramount+ are gaining participation thanks to live sports programming.
In its letter to shareholders, Netflix noted that rival media companies are losing money on streaming as they try to attract viewers.
“Our competitors are investing heavily to increase subscriber numbers and engagement, but building a large, successful streaming business is difficult,” he says.
Netflix has estimated that competitors will end 2022 with combined operating losses of more than $10 billion, while Netflix’s annual profit is expected to be between $5 billion and $6 billion.
Rivals like Disney run various businesses, including TV networks and theme parks, to offset streaming losses.
In the third quarter, Netflix beat Wall Street projections with revenue of $7.9 billion, up 6% from a year earlier. Earnings were $3.10 per share.
The company’s forecast of 4.5 million new subscribers by the end of 2022 was slightly above Wall Street’s estimates, which had averaged 4.2 million. For the fourth quarter, Netflix is projecting revenue of $7.8 billion — a sequential decline attributed to the strong value of the US dollar.
Netflix will also launch a cheaper streaming plan with advertising in early November to appeal to cost-conscious customers, a move that has long faced resistance from executives.
PP Foresight analyst Paolo Pescatore said he expected some of Netflix’s current subscribers to switch to the lower-price plan.
“Some will downgrade or decide to go back to Netflix,” Pescatore said. “The change is as much about retaining users as it is about acquiring new ones.”
Another analyst, Michael Pachter of Wedbush, sees the ad plan as a tool for Netflix to reduce churn, offering price-sensitive subscribers an alternative to canceling the service.
Disney, Warner Bros. Discovery and other companies also offer, or plan to offer, ad options.
While Netflix is making several changes to drive growth, the company said it remains committed to releasing original productions and releasing all episodes at once to allow users to binge-watch.
“We believe the ability for our subscribers to immerse themselves in a story from start to finish increases their enjoyment, but also the likelihood of telling their friends, which means more people watch, participate and stay with Netflix,” the company said.
A new season of the British royal drama “The Crown” and a sequel to the movie “Knives and Secrets” will also be released during the fourth quarter.
Netflix said it would stop providing information about new customers, a key indicator for Wall Street, starting in January. The company will continue to issue forecasts for revenue, operating profit and other metrics.
“We are increasingly focused on revenue as our primary metric,” the company said.
(Translated by Marcelo Azevedo)
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