Netflix shares surge as streaming giant stems customer defections

World's largest streaming service, with nearly 221m global paid subscribers, plans to launch an ad-supported option next year

Tue, 19 Jul, 2022 - 21:35

Lisa Richwine

Netflix said it lost fewer than 1m subscribers from April through June, averting the worst-case scenario projected by the company, and predicted it would return to customer growth during the third quarter.

Netflix shares, which have fallen roughly 67% this year on concerns about future growth, rose around 7% in after-hours trade following the results.

The world's largest streaming service, with nearly 221m global paid subscribers, also said it plans to launch an ad-supported option next year, but it warned that the strong dollar was also hitting revenue booked from subscribers abroad.

Netflix had said in April that it expected to lose 2m customers in the current quarter, shocking Wall Street and raising questions about its long-term prospects.

Defections for the second quarter were not as steep as expected, and Netflix estimated its new customer additions for July through September would amount to 1m. Wall Street analysts were expecting 1.84m.

Passwords crackdown

After years of red-hot growth, Netflix's fortunes changed as rivals including Disney, Discovery, and Apple invest heavily in their own streaming services.

In a letter to shareholders, the company said it had further examined the slowdown, which it had attributed to a variety of factors including password sharing, competition, and a sluggish economy.

In April, the company said it was addressing customer defections in part by planning a crackdown on password-sharing and launching the less-expensive tier with advertising. Last week, Netflix announced Microsoft as its technology and sales partner for the ad-supported offering.

The company also is working to build on the popularity of Stranger Things" and seeking to turn some of its biggest successes into franchises. Revenue would have increased by 13% without the foreign exchange impact, the company said.

Netflix shares have been under pressure for months but some analysts say the streaming giant is on the verge of proving that the launch of a much-anticipated advertising-supported service this year, plus a crackdown on password sharing, could help reverse the company’s shocking subscriber losses.

The company faces mounting competition, customers whose finances are getting pinched by rising inflation, the looming probability of a global recession and the end of the pandemic-fueled streaming boom.

Rivals Disney, Paramount, and Discovery also have been hit, losing a quarter of their market value or more over the past three months. However, newer entrants have priced their subscriptions at marked discounts from Netflix to attract users, a sign that Netflix might win some clients with a lower-priced, ad-supported service.