Netflix lost fewer subscribers than feared in its latest quarter, reporting a significant decrease in members overall — but only after warning it would suffer a more dramatic drop.
Earlier this year, Netflix reported its first decline in membership in more than a decade — a dip that was supposed to presage an even deeper plunge in subscriptions now. But, still the world’s dominant streaming-video subscription service, said subscribers fell by 970,000 to 220.67 million total in April through June, according to its second-quarter report Tuesday.
That beats Netflix‘s April guidance that it would lose 2 million members worldwide. (Analysts on average matched their estimate to Netflix’s guidance, according to a survey by Refinitiv.)
Still, Netflix’s outlook for the third quarter fell short of analysts’ expectations, with Netflix predicting it would gain 1 million members versus the consensus estimate for a 1.8 million subscriber increase.
On Tuesday, Netflix shares were up 6.8% at $215.26 in early after-hours trading. But Netflix’s suddenly shrinking membership has undermined its status as a Wall Street darling, just as it has buffeted Hollywood’s confidence in streaming as its engine into television’s future.
Years of Netflix’s unflagging subscriber growth pushed nearly all of Hollywood’s major media companies to pour billions of dollars into their own streaming operations. These so-called streaming wars brought about a wave of new services, including Apple TV Plus, Disney Plus, HBO Max, Peacock and Paramount Plus — a flood of streaming options that has complicated how many services you must use (and, often, pay for) to watch your favorite shows and movies online.
Now, feeling the heat of intensifying competition to hold onto your attention and your subscription account, Netflix is pursuing strategies it had dismissed for years.
The company plans to launch cheaper subscriptions that are supported by advertising, for one. Even though Netflix blazed the trail for streaming TV, its ad-free-only strategy has fallen behind the standards of the industry. As new competitors launched, they set up memberships that give viewers like you more options. Now most of Netflix’s rivals have a multitier model, typically offering cheaper memberships with ads, as well as more expensive subscriptions that are ad-free.
And Netflix is also testing password-sharing fees, for now only in Latin America. At first, Netflix tried a scheme that charged a fee to add additional memberships as official “sub” accounts. Next, Netflix said it would try a new method starting next month, which will establish an account’s primary residence as its “home” for that account; if you’re streaming at any additional households for more than two weeks, then you’ll need to set up — and pay for — additional “homes,” with a limit on how many additional homes you can add depending on how much you’re already paying for Netflix.
Elsewhere in its report, Netflix said that membership in the US and Canada, its biggest single region (for now), was down 1.3 million for a total of 73.28 million. Subscriptions also fell in the Europe, Middle East and Africa, declining by 770,000 to 72.97 million.
But in the Asia Pacific region, Netflix added 1.08 million subscribers to hit 34.8 million, and in Latin America, the company added a slim 10,000 new members for a total of 39.62 million there.
Overall in the latest period, Netflix reported a profit of $1.44 billion, or $3.20 a share, compared with $1.35 billion, or $2.97 a share, a year earlier. Revenue rose 8.6% to $7.97 billion.
Analysts on average expected per-share profit of $2.75 and $8.04 billion in revenue.