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Netflix has received its biggest springtime growth in subscribers since the early days of the pandemic, following a crackdown on password sharing and a rollout of cheaper subscription options.
Key points:
- Netflix predicts it will have a similar growth in July-Septemeber
- The service will also phase out the basic plan, its cheapest ad-free option
- Investors are unhappy despite growth as the company battles a writer and actor strike
The video streaming service added 5.9 million subscribers during the April-June period, according to numbers released on Wednesday along with its latest quarterly financial results.
The gains easily surpassed the roughly 2.2 million additional subscribers that analysts surveyed by FactSet Research had anticipated.
Netflix ended June with 238.4 million subscribers worldwide.
However, investors seemed unsatisfied, perhaps rattled by management commentary in a shareholder letter.
It warned that "quite a competitive battle" continues to unfold as writers and actors in the US continue to strike, threatening to clog the pipelines feeding entertainment to streaming services.
Netflix's stock price fell 8 per cent in the US's extended Wednesday trading — a drop that could reflect some investors cashing in on share prices that have climbed by more than 50 per cent so far this year.
Money manager Louis Navellier said Netflix now appears "locked and loaded" again after going through a turbulent stretch that included losing 1.2 million subscribers during the first half of last year.
Even though Netflix has bounced back, Investing.com analyst Jesse Cohen believes another slowdown may be coming.
"It will be a challenge for Netflix to sustain this pace of subscriber growth in the future," Mr Cohen said.
Crackdowns paying off
Netflix predicted its subscriber growth during the July-September period will be similar to the numbers posted from April through June.
The second-quarter performance marked Netflix's biggest spring — traditionally the company's slowest stretch of growth — since gaining 10 million subscribers during the same period in 2020 under dramatically different market conditions.
In 2020, people were still largely stuck at home and looking for ways to keep themselves entertained while governments around the world struggled to contain the COVID-19 pandemic.
Now, Netflix finds itself trying to bounce back from a growth slowdown amid stiff video streaming competition and inflationary pressures that have caused many households to clamp down on spending, especially on discretionary items such as entertainment.
As an antidote, Netflix last year introduced a low-priced option that includes commercials and then began to block the rampant sharing of passwords that has enabled an estimated 100 million people worldwide to watch its TV series and films for free.
Non-paying viewers are now required to open their own accounts unless a subscriber with a standard or premium plan agrees to pay an $8 monthly surcharge to allow another person living in a different household to watch.
In its shareholder letter, management said the crackdown on password sharing is resulting in a "healthy conversion of borrower households into full-paying Netflix memberships."
More tinkering to come
As part of Wednesday's earnings release, Netflix also revealed it is phasing out its cheapest ad-free plan but allowing existing subscribers already paying for the $11 basic plan to keep it.
The shift appears designed to get more people to switch to the $7 monthly plan with commercials to boost ad revenue or upgrade to the $17 standard plan or $23 premium plan.
"There is just tons of work ahead of us, tons of opportunity," Netflix Co-CEO Greg Peters said during a Wednesday conference call.
The pricing changes that have already been made helped Netflix boost its second-quarter revenue by 3 per cent from the same time last year, to $US8.2 billon ($12 billion), falling below analyst forecasts.
Netflix earned $US1.49 billion during the period, compared with $US1.44 billion last year. But earnings per share came in at $US3.29 per share, eclipsing the average analyst estimate of $US2.85 per share, according to FactSet.
Hollywood strike affecting bottom line
Netflix did not delve into the potential fallout from the current walkout in the US by both the writers and actors unions.
The dispute revolves largely around the payment system used in video streaming and the rise of artificial intelligence technology threatening to exploit the work of humans and eventually replace them.
Unlike traditional movie and TV studios in the US, Netflix has been able to keep luring in and retaining subscribers with shows it is allowed to use.
Netflix co-CEO Ted Sarandos deflected a question about how long Netflix could keep releasing new series and films if the strike drags on past US Labor Day.
"It's beside the point," Mr Sarandos said during the conference call. "The real point is we need to get this strike to a conclusion so we can continue to move forward."
AP