Netflix loses 1mn subscribers but defections are fewer than feared

Netflix continued to lose subscribers in the second quarter as the company tried to assuage fears about its business prospects, telling investors it was “confident and optimistic about the future”. 

The streaming group lost about 1mn subscribers in the second quarter, a smaller loss than the 2mn it had forecast would cancel their accounts and was helped in part by the release of a new season of the hit show Stranger Things.

However in the third quarter, Netflix projected it would gain 1mn subscribers, a slower turnround than the 1.8mn sign-ups that Wall Street analysts had expected.

The results come after Netflix spooked investors in April when it revealed its decade-long subscriber growth had ended, raising questions about the value of entertainment companies scrambling to compete in streaming.

The stumble rippled across Hollywood and prompted a sell-off in shares of big media groups such as Disney and Warner Bros Discovery that triggered a more austere approach to television and movie production in the past few months.

Netflix shares rose by 6 per cent in after-hours trading, but are still down nearly 70 per cent since the start of the year. The company has been hit by intensified competition, a more saturated US market and its decision to increase prices at a time when consumers are coping with soaring inflation.

Asia-Pacific was the only region where Netflix added subscribers in the three months to the end of June.

Netflix signed up 1.1mn subscribers there, while losing 1.3mn in the US and Canada and 800,000 in Europe, the Middle East and Africa.

In a letter to investors on Tuesday, Netflix acknowledged that re-accelerating its growth would be “a big challenge” but defended its status as “the leader in streaming”.

The company ended the second quarter with 220.7mn subscribers globally, leaving it well ahead of its rivals. Netflix boasted that it also has more influence on pop culture than its competitors, pointing to higher “Twitter volume” for Stranger Things than for Disney’s Obi-Wan Kenobi television series or Paramount’s Top Gun Maverick film.

Netflix outlined plans to jump-start growth, announcing it would next year roll out a new payment plan for users who share an account. It has vowed to crack down on password sharing, estimating that 100mn households are using but not paying for Netflix.

After casually announcing a volte-face on advertising during its first-quarter earnings call, Netflix offered some details about the strategy on Tuesday.

It said it plans to initially launch a cheaper, ad-supported service in a “handful of markets where advertising spend is significant” in early 2023. Netflix this week revealed it was partnering with Microsoft to build this service.

“Our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers,” it said.

Netflix has not said how much it plans to invest in the new service. Co-founder Reed Hastings has previously been opposed to advertising for fear that it would jeopardise the platform’s reputation as a place for viewers to “relax” away from the cacophony of ads.

Netflix earned $1.4bn in net income on $8bn in revenue during the quarter. It said that a stronger US dollar had resulted in a $339mn hit to revenue. It posted earnings per share of $3.20, ahead of analyst expectations of $2.96.

Netflix makes nearly 60 per cent of its revenue from outside the US, leaving it with “high exposure” to swings in foreign exchange rates.