The streaming company reported Tuesday that it notched 2.4 million subscribers in the third quarter of 2022 — a number that far exceeded expectations of 1 million subscribers. In more good news, it said it will likely add 4.5 million subscribers for the fourth quarter, which also is ahead of what investors were expecting.
The news rocketed the company’s shares up 13% on Tuesday in after-hours trading.
Netflix’s third quarter profit came in at $1.3 billion, down from $1.4 billion in the year-earlier quarter. Revenue was up roughly 6% year over year, to $7.9 billion. Both metrics were ahead of what the company projected for the quarter.
“After a challenging first half, we believe we’re on a path to reaccelerate growth,” the company said in its letter to shareholders on Tuesday.
Ads to the rescue?
Tuesday’s earnings were a return to form for Netflix, and while it may not be growing at its former rapid pace it isn’t the same company it was, either. Case in point: the company unveiled “Basic with Ads,” its much anticipated ad-supported subscription plan, last week.
The new tier, which will cost $6.99 a month in the US and be available November 3, is a major strategic shift for the streaming giant, which said for years that having commercials on the service was not something it wanted to do.
But after the rough 2022 that Netflix has had so far, the company knew it had to make some difficult choices.
Netflix reported in April a surprising loss of subscribers for the first time in more than a decade. Its stock plummeted, the company lost billions in market cap, hundreds of employees were laid off and the future of the one-time media darling was in question.
Netflix needed to show investors that it could bring in more money as its subscriber growth was seemingly slowing. Offering a cheaper advertising plan was the one way to potentially do that.
“As we’ve been discussing over the past few quarters, improving our pricing strategy is an important near-term focus,” the company wrote Tuesday. It noted that the “reaction from advertisers so far has been extremely positive.”
“We believe that more choice, especially for more price conscious consumers, will translate into meaningful incremental revenue and operating profit over time,” the company said. “That said, it’s still very early days and, since we’re keeping our existing plans ad-free, it will take us time to build up our membership base and the associated ad revenue.”
Netflix added that password sharing, another way to boost revenue, would be rolling out “more broadly” starting early next year.
Content is king
With Tuesday’s earnings, Netflix appear to have righted itself, for now at least.
But challenges still lie ahead, the biggest of which is more competition than ever — a point that Netflix itself made on Tuesday.
“As we’ve long said, we operate in a highly competitive industry, where people have many different entertainment choices — from linear TV to streaming, YouTube to TikTok and gaming to social media,” Netflix wrote. “The silver lining is that the opportunity is very large and growing.”
The company believes it has “a long runway for growth if we can continue to improve our offering steadily over time.”
Netflix likely did so well in the third quarter thanks to with multiple buzzy hits from “Stranger Things 4” in July to “Monster: The Jeffrey Dahmer Story” in September.
“While we’ve had our share of misses, we’ve managed to create a very broad slate with many great series and films, for whatever your mood or tastes,” the company said.