Netflix loses nearly 1 million subscribers, but helped by ‘Stranger Things’
The popularity of sci-fi series “Stranger Things” helped Netflix fight back against a stream of subscriber cancellations.
The Los Gatos, Calif.-based streamer said Tuesday that it lost 970,000 subscribers in the quarter, marking the second consecutive quarter of subscriber declines.
Nonetheless, the drop was not nearly as bad as the 2 million cancellations Netflix had forecast.
The results came as a relief for the company as it faces stiff competition from rivals including HBO Max and Disney+ and losses in its valuation.
Netflix has responded with rounds of layoffs and by ending its long-standing resistance to running ads on the platform.
Netflix said it is partnering with Microsoft on the launch of a cheaper, ad-supported subscription plan that will attract new customers. The company said it aims to launch it in a handful of markets in the early part of 2023.
Such moves have been largely supported by industry analysts.
“I actually think that they’re going to succeed,” said Michael Pachter, a managing director at Wedbush Securities, who has an “outperform” rating on the stock.
Netflix cited several reasons for the subscriber loss, including rising competition and password sharing. Executives said they would consider a lower-priced option with ads.
The company’s revenue was $7.97 billion in the second quarter, up 8.6% from a year earlier. Net income was $1.4 billion, up from $1.35 billion a year earlier, close to what Wall Street was expecting.
Analysts anticipated Netflix would have $8.03 billion in revenue and net income of $1.3 billion, according to FactSet.
Netflix benefited from releasing the fourth season of “Stranger Things” in two portions, launching Part 1 on May 27 and Part 2 on July 1. Fans of the show would need to subscribe to Netflix for at least two months (across the second and third quarters) to be able to watch the full season at launch.
“Stranger Things 4” is the second-most-popular TV series on Netflix, garnering more than 1.3 billion hours of watch time on the platform in the first 28 days, according to the company. The fourth season of the show — about a group of friends who battle monsters from the Upside Down dimension — is the most-watched English-language TV series of all time on the streaming service, second to Korean-language series “Squid Game.”
“Straddling the quarter with their most popular show necessarily kept people from churning,” Pachter said.
Other popular series in the second quarter included legal drama “The Lincoln Lawyer,” the third season of super hero series “The Umbrella Academy” and basketball drama “Hustle,” starring Adam Sandler.
Still, growth has slowed considerably. Netflix expects to add 1 million subscribers in the third quarter, compared with growth of 4.4 million subscribers in the 2021 third quarter.
As Netflix grapples with a loss in subscribers, the company’s vaunted “team” culture is coming under strain as some employees worry about their future.
Netflix investors had a wake-up call earlier this year when the company for the first time in more than a decade reported a loss of 200,000 subscribers after its customer base had surged during the early part of the pandemic as people sheltered at home.
The company’s stock price has plunged by more than 60% in the last year.
In recent months, Netflix has been cutting costs, laying off 450 employees as well as contract workers in such areas as marketing and social media. While it is expected to spend about $17 billion on content this year and is still rolling out big-budget films such as “The Gray Man,” the company is reducing the volume of movie projects it takes on.
Netflix plans to acquire Sydney, Australia-based animation studio Animal Logic later this year for an undisclosed amount to boost its animation capabilities.
Netflix remains the dominant player in the streaming market with nearly 221 million subscribers, but rivals have been chipping away at its business.
“They added so many people in a short time frame,” said Ross Benes, a senior analyst with market research company Insider Intelligence. “It’s hard to keep that momentum going.”
Aside from rising competition, Netflix has been challenged by the problem of customers sharing their passwords with people who do not live in their households.
To address this, Netflix is testing ways for subscribers in certain countries such as Peru and Chile to pay $2 to $3 more to add non-household members to their plans.
On Monday, the streamer announced plans to test a way for customers in Argentina, the Dominican Republic, El Salvador, Guatemala and Honduras to pay more to add additional homes to their subscriptions.
Password piracy and account sharing is expected to cost streamers and pay TV providers $12.5 billion in 2024, according to Parks Associates.
Another issue for Netflix is cost. Its lowest-price plan with no ads is about $10 a month in the U.S. Streamers at a lower price level include Apple TV+ at $4.99 a month with no ads and Hulu at $6.99 a month with ads (an ad-free option costs $12.99 a month).
“The price is too high and it doesn’t have a cheaper tier,” Laura Martin, a senior analyst at Needham & Co., said of Netflix. “It doesn’t have news or sports, which are really great [for] customer acquisition, and it doesn’t have a bundle.”
Netflix also is exploring livestreaming content, such as comedy specials.
Netflix stock closed at $201.63 a share, up 5.6%. In after-hours trading shares rose about 8%.
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