Netflix’s subscriber and earnings growth accelerated significantly in the latest quarter, thanks to a crackdown on password-sharing, a foray into advertising, and a well-received programming lineup.
The results, announced Thursday, reflect a company regaining momentum after a subscriber decline in early 2022 prompted strategic changes. Netflix added 8 million subscribers from April to June, a 37% increase from the previous year. This marked the sixth consecutive quarter of year-over-year subscriber growth, following the 2022 downturn.
Financially, Netflix is thriving. The company’s profit rose 44% to $2.15 billion, or $4.88 per share, exceeding analysts’ expectations. Revenue grew 17% to $9.56 billion, also surpassing projections. However, Netflix’s management predicted a slower revenue growth rate of 14% for the July-September period, below analysts’ 18% forecast.
The forecast contributed to a mixed reaction from investors, with Netflix’s stock initially falling by 3% in extended trading before recovering to a 1% increase. Analyst Thomas Monteiro from Investing.com viewed the lower guidance as a strategic move to manage high expectations amid rising competition in video streaming.
In mid-2022, Netflix began blocking the common practice of sharing subscriber passwords with people in other households. The company also introduced a low-priced version of its service that includes commercials. Since implementing these changes, Netflix has gained nearly 55 million new paying customers, bringing its total subscriber count to nearly 278 million by June.
Netflix anticipates the benefits from the password-sharing crackdown will diminish, prompting a shift in focus toward increasing ad sales for its low-priced option. This tier saw a 34% subscriber increase from March to June. Despite this growth, Netflix does not expect advertising to become a significant revenue source until at least 2026.
“Ads are going to be a bigger piece of the puzzle, but it won’t be in 2024 or 2025,” said Spencer Neumann, Netflix’s CFO, during a conference call.
Netflix will stop providing quarterly subscriber updates starting next year, aiming to shift investor focus to its financial growth and advertising efforts. The company has also become more selective in its spending, producing fewer movies and TV series than in the past decade. Nonetheless, its current programming is resonating with audiences, as evidenced by its 107 Emmy nominations, the highest in the industry.
“Our goal and our mission is we have to spend the next billion dollars of programming better than anyone else in the world,” said Netflix co-CEO Ted Sarandos.
The strategic shift includes more live-streamed events, such as a roast of retired football star Tom Brady, a hot-dog eating competition featuring Joey Chestnut, and two NFL games on Christmas Day. These live shows, which attract large audiences, help Netflix sell advertising and harken back to television’s roots, according to Forrester Research analyst Mike Proulx.
Source: AP News
