Netflix is ​​recovering from recent subscriber losses

Netflix expects to add even more subscribers early next year as it begins cracking down on rampant password sharing.

SAN FRANCISCO — Netflix reversed its recent subscriber losses with a summer profit that management plans to build on with the forthcoming launch of a cheaper version of the video-streaming service that will contain advertising for the first time.

The Los Gatos, Calif.-based company said Tuesday it added 2.4 million subscribers in the July-September period, a comeback after losing 1.2 million subscribers during the first half of the year amid stiffer competition and rising inflation that is squeezing household budgets.

Netflix now has 223 million subscribers, allowing the company to reclaim its mantle as the world’s largest video streaming service, at least temporarily. Walt Disney Co. eclipsed Netflix in August when it reported that its service had 221 million subscribers, a tally that will be updated Nov. 8 when Disney is scheduled to announce its summer results.

“Thank God we’re done with shrinking quarters,” Netflix co-CEO Reed Hastings exclaimed in a video conference call Tuesday. “We’re back in positivity.”

The surge in subscribers also helped Netflix earn $1.4 billion, or $3.10 per share, down 4% from the year-ago period. Revenue rose 6% year over year to $7.93 billion. Subscriber earnings, earnings per share and revenue beat all analyst forecasts compiled by FactSet.

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Netflix shares rose about 14% after the latest numbers were released. Still, the stock has lost more than half of its value so far this year, reflecting concerns that Netflix’s best days are over.

Now that Netflix is ​​growing again, it will aim to accelerate momentum with its first ad-supported plan rolling out in the US and 11 other markets in early November. The new option costs $7 per month in the US, less than half the price of Netflix’s most popular $15.50 plan without ad breaks.

“Netflix still has plenty of room to grow and capture market share in a price-sensitive market,” said analyst Haris Anwar, in a sign of renewed optimism about the company’s prospects.

In a possible sign that Netflix doesn’t expect the ad-supported plan to be an immediate hit, management forecasts it will add 4.5 million subscribers over the October-December period. While that would be Netflix’s biggest quarterly gain this year, it would still be down from the 8.3 million subscribers it added during the same holiday season last year.

Netflix is ​​apparently hoping to defuse Wall Street’s longstanding focus on subscriber growth by stopping making forecasts about how many subscribers it expects to add from one quarter to the next. Management said on Tuesday that its subscriber guidance for the current quarter will be its last, but that it will continue to forecast earnings and revenue, hoping investors will pay more attention to those numbers.

While investors have generally been excited about Netflix’s expansion into the advertising market, a major concern is whether the additional revenue from commercial sales will be enough to offset the losses existing subscribers are suffering from the higher prices they are currently paying pay, switch to the cheaper option.

Netflix is ​​forecasting nearly $7.8 billion in revenue for the quarter that covers the holiday season, which traditionally spurs more advertisers, according to FactSet, slightly below analysts’ expectations. If Netflix meets its revenue guidance, it will result in a 4% increase from the year-ago period. In comparison, Netflix reported a 16% year-over-year increase in revenue for the holiday quarter of 2021.

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However, an analysis by research firm Insider Intelligence suggests that advertising will make up a significant portion of Netflix’s revenue. According to Insider Intelligence, Netflix is ​​expected to bring in more than $830 million from advertisers in the US alone next year, followed by more than $1 billion in the US in 2024.

“The economics will be fine,” Netflix chief operating officer Greg Peters said during Tuesday’s earnings call.

Netflix expects to add even more subscribers early next year as it begins cracking down on the rampant password sharing that has allowed millions of people to watch its service for free. Netflix unveiled Monday as a prelude to pushing a market segment the company has dubbed “borrowers.” a new feature called “profile transfer” This allows viewers to export their custom recommendations and personal histories to a new account.

“All the stars are lining up for us,” Hastings said on Tuesday. Netflix is ​​recovering from recent subscriber losses

Laura Coffey

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