Bloomberg — After losing more than a million customers in the first half of 2022, Netflix Inc. (NFLX) has a message for investors: It could have been worse.
The leader in paid streaming TV lost 970,000 subscribers in the second quarter, according to a statement Tuesday. That was less than half what Wall Street feared, thanks in large part to a new season of “Stranger Things,” the service’s most popular English-language series.
While Netflix said it has already endured the worst of the subscriber losses, it isn’t projecting a return to rapid growth any time soon. The company expects to sign up 1 million subscribers in the current three-month period -- essentially reversing the losses of the first half. That’s well short of the 1.83 million analysts forecast this period.
The sudden reversal in subscribers -- ending a decade of uninterrupted growth -- has spooked Wall Street and Hollywood, both of which saw streaming as the future of entertainment. Shares of Netflix were down 68% this year through Monday’s close.
But Netflix remains confident in its position. The company said its share of total TV viewing in the US hit an all-time high in June at 7.7%.
Management has responded to the slide by cutting costs and adjusting its strategy on several fronts. The company plans to introduce a lower-priced version of the service with advertising later this year, and is testing ways to charge customers for password sharing.
“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience,” the company said in a letter to shareholders.
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For the second quarter, revenue grew 8.6% to $7.97 billion, Netflix said. That missed Wall Street estimates of $8.04 billion, in part because of the strong dollar.
Netflix lost 1.3 million customers in the U.S. and Canada, its largest region, and another 770,000 in Europe, the Middle East and Africa, its second-largest. Those are the steepest quarterly declines the company has reported in either place since it started breaking out those markets.
Growth in the Asia-Pacific region offset those declines. Netflix added 1.1 million customers in APAC, after cutting prices in India.
Chairman Reed Hastings long positioned Netflix as an advertising-free alternative to cable TV, but now says commercials are necessary to appeal to people who find the service too expensive.
Release Strategy
Netflix has raised prices several times and is now one of the most expensive streaming services. The company will introduce the advertising-supported option in a handful of countries later this year, and just tapped Microsoft Corp. (MSFT) to handle ad sales and technology.
Netflix has also started to release new episodes of shows in batches, breaking with its tradition of dropping every episode of a season at the same time. It released the final season of the drama “Ozark” and “Stranger Things” in two batches.
The batching strategy allows Netflix to extend the life of its biggest shows. When every episode is released at once, the majority of the viewership happens in the first couple of weeks. The number of people who cancel Netflix has jumped 87% since a year ago, according to Antenna.
The popularity of the fourth season of “Stranger Things” exceeded the expectations of Netflix executives. The supernatural drama has been one of the service’s most popular titles since its debut in 2015, and turned star Millie Bobby Brown into one of the most in-demand actresses in Hollywood.
The release of “Stranger Things” meant that fans who had Netflix in the second quarter would want to keep the service until the start of the third quarter to finish the season. The company is looking to turn hits like “Stranger Things” into franchises that can outlast any individual show. The creators of the show are developing a spin-off series, and Netflix has also announced plans for a Broadway play.
Total subscribers in the second quarter. came to 220.7 million, compared with estimates of 220.2 million. Earnings of $3.20 a share beat analysts’ projections.
This quarter, Netflix forecasts revenue of $7.84 billion, shy of Wall Street estimates of $8.1 billion. The company sees earnings of $2.14 a share, compared with estimates of $2.72, and says total membership will reach 221.7 million, also shy of estimates.
