Netflix reported better-than-expected earnings on Tuesday, seeing a smaller outflow of viewers than initially forecast, even as the platform struggles to maintain its rapid pandemic growth.
Although Netflix reported its second straight quarterly decline in subscriber growth and lost 1 million viewers in the second quarter of 2022, that number was lower than the 2 million forecast in its previous report. Shares rose 10% in after-market trading.
Netflix’s total revenue for the first quarter of 2022 was $7.97 billion, beating analysts’ expectations of $8.04 billion. In a letter to investors, Netflix said generating more revenue growth is a current focus.
“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content and marketing as we have done for the past 25 years, and to better monetize our large audience,” the letter said.
Shares of Netflix have fallen roughly 67% this year. The company cited additional headwinds for the delay, including password sharing, competition and a sluggish economy. Additionally, the strong dollar is said to be impacting non-US subscribers.
To offset the decline, Netflix for the first time launched a cheaper version of its platform that includes advertising, a move that Jesse Cohen, senior analyst at Investing.com, said could serve as a much-needed growth catalyst.
“We expect advertisers looking for the chance to reach younger viewers who have abandoned traditional TV will likely devote a larger portion of their marketing budget to advertising on Netflix in the future,” he said.
Tuesday’s report was the first since April, when the company’s value fell 35% after Netflix revealed it had lost more than 200,000 subscribers in the first three months of the year. Experts say the company is not out of the woods yet as it tries to stabilize its decline.
“Netflix is still the leader in video streaming, but unless it finds more franchises that resonate broadly, it will eventually struggle to stay ahead of the rivals chasing its crown,” said Ross Benne, an analyst at the market research firm Insider Intelligence.
The report did not address fears of further layoffs after the company cut 150 jobs in the previous quarter. Other major tech companies, including Spotify and Google’s parent company Alphabet, have announced hiring slowdowns and layoffs in recent weeks.
Netflix and other streaming companies experienced explosive growth at the start of the pandemic when millions were locked out, but the company has struggled to maintain its trajectory. It added more than 36 million subscribers in the first year of the pandemic, and its share rose 86% from the end of 2019 to 2021, while the S&P 500 rose 48%.
But the streaming market has become overcrowded, with a number of platforms vying for a limited number of viewers. Netflix also competes with legacy media rivals that are putting large amounts of funding into original programming. Disney, which owns ESPN, Hulu and Disney Plus, spent $33 billion on content this year.
Netflix’s earnings report comes amid a broader decline in the tech industry, accompanying market-wide fears of a recession as inflation continues and Silicon Valley struggles to maintain pandemic momentum. Investors will be watching closely as Meta, Google, Twitter and Tesla report earnings in the coming weeks.
Reuters contributed reporting
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