Daily Management Review

Netflix Forecasts Customer Growth Soothing Concerns Of Wall Street Investors


Netflix Forecasts Customer Growth Soothing Concerns Of Wall Street Investors
Netflix Inc avoided its own worst-case scenario of subscriber losses on Tuesday, reporting a nearly 1 million reduction from April to June and predicting a return to user growth in the third quarter.
Shares surged 8 per cent in after-hours trading following the report, after falling about 67 per cent this year due to fears about the company's long-term prospects. Investors saw the projection as a hint that, despite a shaky global economy and signs of saturation in its largest markets, the United States and Canada, Netflix could still attract new customers.
The world's largest streaming service has announced that it will provide an ad-supported version next year. It also cautioned that the high dollar was hurting revenue from subscribers in other countries.
In April, the company predicted that it would lose 2 million members in the second quarter, startling Wall Street and increasing concerns that the streaming TV boom had come to an end. The losses were around half that, at 970,000.
"Our excitement is tempered," Chief Executive Reed Hastings said in a post-earnings interview posted on YouTube, given that Netflix still lost subscribers. "But looking forward, streaming is working everywhere. ... We're very bullish on streaming."
Hastings attributed the decrease in defections to new episodes of the science-fiction series "Stranger Things," the most-watched English-language show in Netflix history.
According to analysts polled by Refinitiv, Netflix forecasted 1 million user increases from July to September, while Wall Street analysts expected 1.84 million.
"The stock is up because (analyst) downgrades all made a big deal out of slowing growth," Wedbush Securities analyst Michael Pachter said, noting that Netflix was cutting costs and expected free cash flow to grow substantially next year.
Following the Netflix revelation, shares of other streaming businesses increased marginally. Roku Inc stock rose 2.7 per cent, while Walt Disney Co and Paramount Global each rose nearly 1 per cent.
Netflix's fortunes shifted after years of explosive expansion as rivals such as Disney, Warner Bros Discovery, and Apple Inc invested substantially in their own streaming platforms.
In the second quarter, Netflix dropped 1.3 million members in the United States and Canada, and 770,000 in Europe, the Middle East, and Africa. This was countered by a nearly 1.1 million member increase in the Asia/Pacific area.
Netflix said in a letter to shareholders on Tuesday that it had further investigated the recent slowdown, which it linked to a range of causes such as password sharing, rivalry, and a slowing economy.
"Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content and marketing as we’ve done for the last 25 years, and to better monetize our big audience," the letter said.
Reducing password sharing is one method the corporation intends to earn more from subscribers. In Latin America, the business is testing two options.
It is also attempting to capitalise on the success of "Stranger Things" by turning some of its biggest achievements into franchises.
With approximately 221 million global paid customers, Netflix is the biggest streaming service. Co-CEO Ted Sarandos stated that the firm still expects "enormous" growth potential by luring many of the billions of individuals who have yet to sign up.
"We have some headwinds right now, and we're navigating through them," Sarandos said.
Earnings per share for April through June were $3.20, exceeding the Wall Street consensus of $2.94.
Netflix said the strong US currency hurt revenue, which increased 9 percent to $7.97 billion, falling short of analyst expectations of $8.04 billion. According to the corporation, revenue would have climbed by 13% if not for the foreign exchange impact.
Netflix introduced Microsoft Corp as its technology and sales partner for the ad-supported service last week.