Jul 19, 2022 - Economy

Netflix stock spikes following better-than-expected subscriber losses

Percentage change in Netflix global streaming subscribers
Data: Netflix earnings reports; Chart: Erin Davis/Axios Visuals

Netflix's stock was up more than 10% in after-hours trading Tuesday after the streaming giant said it lost 970,000 subscribers last quarter, as opposed to the 2 million it initially forecasted.

Why it matters: Investors worried after Netflix's shocking subscriber loss last quarter that the streamer's growth runway was shrinking. Tuesday's results and forecasts suggest the wreckage may not continue to be as bad as investors were expecting, although headwinds still persist.

  • Netflix's stock was down 68% year-to-date heading into Tuesday's earnings report, suggesting much of the concerns around its growth prospects were already built into its stock.

Details: It's likely investors also responded positively to the news that the streaming giant expects to return to positive subscriber growth next quarter. Netflix forecasts it will add 1 million subscribers between July and September.

  • When it comes to its financials, Netflix met Wall Street expectations on profit growth, but missed expectations on revenue growth slightly.
  • The company cited headwinds related to foreign currency exchange rates as having an impact on its revenue, and predicted those issues would have a bigger impact next quarter.

By the numbers, via CNBC:

  • EPS: $3.20 vs $2.94 per share, according to Refinitiv.
  • Revenue: $7.97 billion, vs. $8.035 billion, according to Refinitiv survey.
  • Global paid net subscriber additions: A loss of 970,000 subscribers vs. expectations of a loss of 2 million, according to StreetAccount estimates.

Between the lines: Netflix has been investing in more targeted acquisitions in content and gaming as it looks to become less reliant on licensing content from other companies that have now established their own streaming products.

  • On Tuesday, the company announced it will be acquiring Animal Logic, an 800-person animation studio, to accelerate its development of animated productions to compete more head-on with rival Disney.

Be smart: Netflix also offered a few more details about its planned ad-supported tier, saying it plans to launch the new cheaper, option in early 2023.

  • It emphasized that the lower-price ad plan will "complement our existing plans," which will remain ad-free. Netflix recently announced it would partner with Microsoft to pursue ads.
  • Looking ahead, Netflix said it will likely roll out its ad-supported tier "in a handful of markets where advertising spend is significant" and will iterate on the product over time.
  • "Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners," the company said in a shareholder letter.

The big picture: As the markets continue to take a turn for the worse, Wall Street is putting more pressure on companies like Netflix to not only grow their subscriber numbers, but to grow their revenues and profits as well.

  • Netflix cited plans to monetize the 100 million+ households it believes are watching Netflix but not paying for it by testing paid sharing plans. The company said experiments it has run so far in Latin America to convert consumers to paid sharing have been "encouraging."
  • The company acknowledged a $70 million loss it took for severance costs last quarter related to layoffs at the company.

Go deeper ... Netflix's earnings over the past year:

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