Netflix has been in a slump lately, and the second-quarter earnings have shown no indications of an improvement.
The streaming platform had found itself in a rut after losing subscribers earlier this year, especially when plans came out that it would integrate ads in between movies and shows.
Netflix hoped that the return of Stranger Things would help throw a lifeline, and while it did gain traction, things didn’t go as planned.
Second Quarter earnings
The second-quarter earnings arrived, and it was revealed that Netflix lost over 1 million subscribers globally.
The results mark the second consecutive quarter that sees a significant loss of customers.
The reports reveal that Netflix lost 1.3 million subscribers in the United States and Canada – the third time the company in five quarters lost paid users in the most profitable regions based on the average revenue per user.
Third Quarter forecast
According to StreetAccount, Netflix is looking to add one million subscribers, which is lower than the 1.8 million average analyst estimate.
Should the streaming giants follow through and execute the addition, Netflix will still have lost subscribers in 2022 through nine months – a lower number compared to analyst estimates (nearly 20 million net adds).
Silver linings
Although it lost a huge chunk of subscribers, Netflix shares soared more than 6% in after-hours trading.
Initially, the company predicted a loss of 2 million subscribers in the quarter, but a one million loss shows a positive sign.
Investor sentiments
The silver lining shows a positive sentiment among investors, driven by Netflix’s concrete plans to revitalize growth.
However, most of the plans won’t be set in motion until next year.
Plans
Netflix has long been tipped to launch advertising-supported products, but while it was set for a late 2022 release, it has been delayed to early 2023.
The streaming service revealed it would ask subscribers in five countries across central and South America to pay an extra $2.99 a month to add a “second home” to their accounts.
The decision to add more charges can be attributed to inflation as it prompted Netflix to address password-sharing and get more money from existing audiences.
“I think they’ll probably gain more than they would lose from doing this,” said Ampere Analysis executive director Guy Bisson.
“They can roll it out sequentially and gradually and make sure it’s having the effect they expect.”
Netflix hoped to debut a cheaper tier.
Shareholder letter
Meanwhile, a quarterly shareholder letter revealed an outline of plans Netflix has to crack down on the password-sharing problem.
The letter noted that two different approaches were launched in Latin America to find “an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023.”
“We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America,” Netflix added.
The letter concluded with a pep talk that had investors listening to head coaches Reed Hastings and Ted Sarandos.
“Reaccelerating our revenue growth is a big challenge,” Netflix wrote. “But we’ve been through hard times before.
We’ve built this company to be flexible and adaptable and this will be a great test for us and our high performance culture.
We’re unfortunate to be in a position of strength as the leader in streaming entertainment by all metrics (revenue, engagement, subscribers, profit, and free cash flow).
We’re confident and optimistic about the future.”
References:
Netflix trials charging $2.99 for shared accounts
Netflix earnings weren’t great, but they were good enough for investors
