Netflix limits its losses to one million subscribers in the 2nd quarter and plans a rebound

Posted 20 July, 2022

Netflix has not said its last word: the streaming giant lost subscribers again in the second quarter, but less than expected, and is betting on a rebound this summer, giving hope to investors who feared a free fall.

The industry pioneer announced on Tuesday that it had lost 970,000 subscribers between the end of March and the end of June, instead of the two million it expected.

"It's not easy to talk about success when you've lost a million" customers, acknowledged Reed Hastings, co-founder of Netflix.

“But we are well prepared for next year,” he added during a conference call.

The service, which now has 220.67 million paying subscribers worldwide, was a major disappointment in the first quarter when it admitted to losing subscribers for the first time in a decade.

A sign that Tuesday's news reassured the market, its stock rose more than 7% in electronic trading after the close of the New York Stock Exchange.

The Californian group published a turnover of 7.97 billion dollars for the period from April to June, a result lower than expectations which is put in particular on the account of an unfavorable exchange rate.

On the other hand, it made 1.44 billion in net profit, better than expected.

These performances "show that Netflix is ​​not likely to put the key under the door for the moment", reacted the independent analyst Rob Enderle.

"They have bought time, which they need to stop the bleeding" of subscribers, he continued.

Netflix expects to regain one million subscribers in the third quarter and thus reach 221.67 million paying subscribers. A figure nevertheless still below that of the end of 2021.

 

Leader threatened

 

To achieve this, the platform is counting in particular on the success of the fourth season of the science fiction and teenage adventure series "Stranger Things", which has just concluded, and also on the imminent release of "The Gray Man". , a film by the Russo brothers, the directors of "Avengers: Endgame", which could turn into a franchise if it conquers the public.

"With 1.3 billion hours on the clock for season 4 of Stranger Things, Netflix's ability to produce successful content is not in question," noted Neil Saunders, director of GlobalData.

But "the Netflix model is not as relevant to generating growth in a changing economy and consumer society," he added.

After years of rapid conquest, and after taking full advantage of the pandemic and health restrictions, Netflix is ​​undergoing a correction effect, amplified by the competition that has saturated the market in recent years.

Added to the loss of subscribers is an unfavorable economic context, from the war in Ukraine to inflation and the strong dollar.

"Netflix remains the leader in video streaming but if it doesn't find more franchises that resonate widely, it will end up struggling to stay ahead," commented eMarketer analyst Ross Benes.

 

Belt-tightening

 

In the first quarter, the service had lost 200,000 subscribers worldwide compared to the end of 2021. The news had plunged its stock market price by 25%.

The bosses of the platform then announced, in April, their intention to offer a cheaper subscription formula but with advertising, after years of refusing this less prestigious solution.

"Given the strong demand from brands, this product should increase their revenue per user. But there is no evidence that this will slow subscription cancellations or attract enough new consumers," said Ross Benes.

Last week, the company specified that the new subscription would be added to the three options already available ("Essential", "Standard" and "Premium"), the cheapest being ten dollars per month in the United States.

It aims to launch the formula in early 2023.

In April, Netflix had also indicated that it was going to tighten the screw on the side of the sharing of identifiers and passwords, which allow many people to access the content of the platform without paying.

A system should be "implemented next year as planned", confirmed Greg Peters, the director of operations.

The slowdown in the platform's growth has also resulted in layoffs: more than 400 employees were laid off during the past quarter, mainly in the United States.

But the group still continues to invest in content production: it announced the acquisition of the Australian animation studio Animal Logic, which has some 800 employees.

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