Netflix continued to lose subscribers in the second quarter as the company tried to calm fears about its business outlook, telling investors it was “confident and optimistic about the future.”
The streaming group lost about 1 million subscribers in the second quarter, a smaller loss than the 2 million it predicted would cancel their accounts and was helped in part by the release of a new season of the hit show Stranger Things.
Still, in the third quarter Netflix forecast it would gain 1 million subscribers, a slower turnaround than the 1.8 million subscribers Wall Street analysts had expected.
The results come after Netflix spooked investors in April when it revealed that a decade of subscriber growth had ended, raising questions about the value of entertainment companies struggling to compete in streaming.
The setback rattled Hollywood and triggered a sell-off in shares of major media groups such as Disney and Warner Bros Discovery, prompting a tighter approach to TV and film production in the past few months.
Shares of Netflix rose 6% in after-market trading, but are still down nearly 70% since the start of the year. The company has been hit by increased competition, a more saturated U.S. market and its decision to raise prices at a time when consumers are dealing with rising inflation.
Asia Pacific was the only region where Netflix added subscribers in the three months to the end of June.
Netflix registered 1.1 million subscribers there, while losing 1.3 million 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 growth will be a “big challenge” but defended its status as a “streaming leader.”
The company ended the second quarter with 220.7 million subscribers worldwide, putting it well ahead of its competitors. Netflix has boasted that it also has a bigger impact on pop culture than its competitors, citing greater “Twitter volume” for Stranger Things than for Disney’s Obi-Wan Kenobi TV series or Paramount’s Top Gun Maverick movie.
Netflix has outlined plans to jump-start growth, announcing that it will launch a new payment plan for users who share an account next year. The company has vowed to crack down on password sharing, estimating that 100 million households use but don’t pay for Netflix.
After casually announcing the Volt on advertising during its first-quarter earnings call, Netflix offered some details about the strategy on Tuesday.
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It said it plans to initially launch a lower-cost, ad-supported service in “a handful of markets where ad spending is significant” in early 2023. Netflix this week revealed it is partnering with Microsoft to build the service.
“Our hope is to create a better than linear TV advertising model that is more seamless and relevant to consumers,” it said.
Netflix did not say how much it plans to invest in the new service. Co-founder Reed Hastings had previously opposed the ad out of fear that it would jeopardize the platform’s reputation as a place for viewers to “unwind” away from the cacophony of ads.
Netflix earned $1.4 billion in net income on revenue of $8 billion in the quarter. It said the stronger U.S. dollar took a $339 million hit to revenue. It posted earnings per share of $3.20, beating analysts’ expectations of $2.96.
Netflix makes nearly 60 percent of its revenue outside the US, leaving it with “high exposure” to changes in currency rates.
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