Netflix Inc. reversed customer losses that had hammered its stock this year and projected more growth ahead, reassuring Wall Street as it prepares to offer a new streaming option with advertising.
Shares of Netflix NFLX-Q jumped 14 per cent in after-hours trading, boosted in part by the streaming giant’s forecast that it would pick up 4.5 million customers in the fourth quarter. The company’s stock, an investor favourite during its years of rapid growth, had fallen nearly 60 per cent this year before the earnings report.
“Thank God we’re done with shrinking quarters,” said chief executive Reed Hastings, adding the company needs to continue gathering momentum by focusing on content, marketing and a lower-priced plan with advertising.
From July through September, Netflix attracted 2.4 million new subscribers worldwide, more than double what Wall Street expected.
“Netflix’s impressive numbers show the company’s growth story is far from over,” said Investing.com analyst Haris Anwar.
During the quarter, Netflix released the final episodes of sci-fi hit Stranger Things plus serial-killer series Dahmer – Monster: The Jeffrey Dahmer Story, which became one of Netflix’s most-watched series of all time.
The streaming giant is working to kick-start membership growth after a sudden decline in the first half of the year, when the company’s subscriber base shrunk by 1.2 million amid a rocky global economy and growing competition for online video viewers. Netflix now has a total of 223.1 million subscribers around the world.
Most established services have stopped growing in the United States, where the market has reached maturity. Newer entrants, such as Paramount Global’s Paramount+, are picking up market share thanks to live sports programming.
In its quarterly letter to shareholders, Netflix noted that rival media companies are losing money from streaming as they try to attract viewers.
“Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard,” the letter said.
Netflix estimated that competitors would end 2022 with combined operating losses of “well over [US]$10-billion,” compared with Netflix’s annual operating profit of US$5-billion to US$6-billion.
Rivals such as Walt Disney Co. run multiple businesses including TV networks and theme parks to offset streaming losses.
For the third quarter, Netflix topped Wall Street projections with revenue of US$7.9-billion, up 6 per cent from a year earlier. Earnings were US$3.10 a share.
The company’s forecast of 4.5 million customer pickups by the end of 2022 came in slightly ahead of Wall Street estimates, which had averaged 4.2 million. For the fourth quarter, Netflix is projecting revenue of US$7.8-billion – a sequential decline it blamed on the strong value of the U.S. dollar.
Netflix is launching a US$7-a-month streaming plan with advertising in early November to attract cost-conscious customers, a move executives had long resisted.
PP Foresight analyst Paolo Pescatore said he expected some of Netflix’s current subscribers to switch to the lower-priced plan.
“Some will downgrade or decide to come back to Netflix,” Mr. Pescatore said. “The move is as much about retaining users as well as signing up new ones.”
Another analyst, Wedbush’s Michael Pachter, saw the ad-supported tier as a tool for Netflix to reduce churn by giving price-sensitive subscribers an alternative to cancelling the service.
Disney, Warner Bros Discovery and other companies also offer, or plan to offer, ad-supported options.
While Netflix is making various changes to propel growth, the company said it remained committed to producing original programming and releasing all episodes at once to allow binge watching.
“We believe the ability for our members to immerse themselves in a story from start to finish increases their enjoyment but also their likelihood to tell their friends, which then means more people watch, join and stay with Netflix,” the company said.
A new season of British royalty drama The Crown and a sequel to 2019 movie Knives Out also will be released during the fourth quarter.
Netflix said it would stop providing guidance for new customers, a key gauge for Wall Street, starting in January. The company will continue to issue forecasts for revenue, operating income and other metrics.
“We are increasingly focused on revenue as our primary top line metric,” the company said.