Netflix is returning to growth mode
Netflix Co-CEO Greg Peters speaks at a keynote about the future of entertainment at Mobile World Congress 2023.
Joan Cros | Photo only | Getty Images
Netflix correct that Great Netflix fix.
Way back in April 2022, Netflix reported a loss of 200,000 subscribers. The company predicted it would lose another 2 million subscribers in the second quarter of the year. When Netflix announced the actual results three months later, the number ended up being around 1 million.
The losses sent shock waves through the media landscape that are still felt today. Investors were disappointed with the subscription streaming business. Rivals like Disney And Warner Bros. Discovery began publicly prioritizing profitability over subscriber growth. Netflix shares fell about 60% in the coming months. At some point, media executives and journalists began calling the shift in sentiment the “Great Netflix Correction.”
But those times are now over. Netflix reported third-quarter results that finally end this chapter and usher in a new era of growth. Buoyed by a global crackdown on password sharing and an ad-supported plan ($6.99 per month in the U.S.) that’s 55% cheaper than its standard plan, Netflix added and exceeded nearly 8.8 million subscribers in the quarter thus the estimates of Wall Street. That’s more than the company has added in any quarter since the second quarter of 2020, when Netflix added 10 million subscribers in the early days of the Covid pandemic.
Netflix also predicts that next quarter’s subscriber growth will be similar to Q2, give or take “a few million.”
“The biggest surprise to me is the outlook for subscriber growth in the fourth quarter,” said Mark Mahaney, analyst at Evercore ISI.
Read more: Netflix focuses more on sports programming
For much of 2022, it looked like it was Netflix needed a growth narrative. The company launched a video game service and tried to stop investors from worrying about subscriber growth. In November, it introduced its cheaper advertising tier – a product that Netflix hoped would appeal to those who had shared passwords in the past and paid nothing.
“We are increasingly focused on revenue as our primary revenue metric,” Netflix wrote in its letter to shareholders on its third quarter 2022 results. “This will become particularly important in 2023 as we develop new revenue streams, such as advertising and paid sharing Membership is just one component of our revenue growth.”
Netflix’s revenue rose nearly 8% to $8.54 billion in the quarter. The company forecast fourth-quarter revenue to rise 11% to $8.69 billion.
It turns out that membership growth has actually returned. Investors appear to be once again looking at Netflix as a growth opportunity. Shares rose 12% in after-hours trading.
That doesn’t mean Netflix is erasing the big Netflix correction from history. Even with Wednesday’s after-hours increase, Netflix shares are trading at around $390. That’s a far cry from the $690 per share level reached in October 2021.
Nevertheless, it is now clear that Netflix has opened a new chapter. It’s unclear how long the crackdown on password sharing will take in the coming quarters. So far, Netflix has estimated that about 100 million households share passwords, but it’s still unclear how many of those moochers will actually subscribe to their own accounts – and for how long.
It may be too early to declare victory, but it’s not too early to say that Netflix has avoided defeat.
WATCH: Netflix’s fourth-quarter subscriber growth outlook is a ‘big surprise,’ says Evercore analyst
