In what will be a relief for the streaming giant, Netflix did not complete a hattrick of losing subscribers over three consecutive quarters this year. After losing 200,000 subscribers in Q1 2022 and 970,000 subscribers in the following quarter, the third quarter of the year saw the streaming platform put a halt to its declining growth and instead add 2.41 million net global subscribers.
Netflix shares jumped as much as 15% in after-market trading after the company shared its financials for the third quarter of the year, which also saw it exceed analyst expectations. The streaming major is currently trading at $240.86.
“After a challenging first half, we believe we’re on a path to reaccelerate growth. The key is pleasing members. It’s why we’ve always focused on winning the competition for viewing every day. When our series and movies excite our members, they tell their friends, and then more people watch, join and stay with us,” Netflix wrote in a letter to its shareholders.
“Thank god we’re done with shrinking quarters,” Reed Hastings, Netflix co-CEO, said during the company’s earnings interview. “We’re back to the positivity. Obviously, this quarter and the guidance for Q4 are reasonable — not fantastic, but reasonable. We’ve got to pick up the momentum.”
According to the reported financials, it clocked $7.926 billion in the quarter, exceeding analyst estimates of $7.837 billion and clocking a year-over-year (YoY) growth of 5.9%. Its operating income dropped from $1.578 billion in Q2 to $1.53 billion in Q3 2022, while its net income clocked a quarterly drop to $1.4 billion in the third quarter. Its diluted EPS (earnings per share) exceeded analyst forecasts of $2.13 to amount to $3.10 per share.
Nonetheless, it is a better quarter for Netflix when compared to the dismal picture it had created in the first half of the year. The addition of 2.41 million net global subscribers (exceeding the estimated 1.99 million) takes the total number of global streaming paid memberships to 223 million, which is an annual growth of 4.5%. While it is better than incurring losses, it is still slower than the annual growth clocked in previous quarters (Q2 2022 saw annual growth of 5.5%, while the first quarter of the year saw YoY growth of 6.7%).
“We’re still not growing as fast as we’d like,” Spencer Neumann, CFO at Netflix, said during the company’s earnings call. “We are building momentum, we are pleased with our progress, but we know we still have a lot more work to do.”
The U.S. and Canada regions saw Netflix add 100,000 subscribers, while the Asia-Pacific region contributed a further 1.4 million paying subscribers.
Going forward, it expects to add 4.5 million new net global subscribers during the period. However, it warned that the appreciation of the US dollar remained a significant headwind for the company and that it expected to rein in $7.8 billion in revenue in the following quarter. Additionally, Netflix will refrain from providing guidance for its paid memberships, although it will continue to report the others when it reports the financials for the quarters.
The fourth quarter will also show the fruits of Netflix’s new-found focus on advertising and cracking down on password sharing. Earlier, it introduced a new ad-supported tier that will cost lesser than its existing tiers and will continue a host of advertisements instead. Its cracking down on password sharing also includes the rolling out of features such as “adding a home” and Profile Transfer.