- Shares rise 15% in after-market after trading
- Records subscriber growth after two quarters of shrinkage
- Will no longer provide guidance for subscription expectations
With shares in global streaming giant Netflix (NFLX:NASDAQ) down 60% year-to-date some investors may have been hiding behind the sofa ahead of third quarter earnings, expecting the worst.
However, the company appears to have got its mojo back. After reporting two consecutive quarters of falling subscribers, it added 2.4 million in the three months to 30 September pushing the shares up around 15% in after-market trading.
Subscriber growth was double what Wall Street analysts had expected going into the numbers and pushed the company back into year-on-year growth with 223 million subscribers.
The gain catapults Netflix to the front of the pack again. For comparison Amazon Prime video has 200 million subscribers while Walt Disney (DIS:NASDAQ) across its various channels and platforms had 221 million subscribers at the end of June.
LOWER EARNINGS BAR
Earnings forecasts for 2022 have fallen around 25% since the beginning of the year, creating a lower bar for the company. Despite earnings per share falling almost 3% to $3.10, it handsomely beat expectations of $2.10 per share.
Like most global businesses the company flagged the strength of the dollar and rising costs as macroeconomic headwinds going forward. Netflix expects lower fourth quarter earnings.
NEW REVENUE STREAMS
The company’s initiative to offer an advertising-led subscription tier drew some scrutiny as investors weighed the effects. While it could prompt some users to switch to lower cost accounts as household budgets come under stress, it also creates more consumer choice.
Investment director Russ Mould at AJ Bell commented: ‘First, it could help reduce customer churn - anyone looking to cut spending during the cost-of-living crisis can just move down a subscription tier, pay a bit less each month and still be able to watch Netflix. That’s better for the company than simply losing the customer outright.
‘Second, it might attract new customers who were previously put off the higher price point of a subscription. Third, it creates an additional revenue stream for the group in the form of advertising income.’
Netflix also announced a clampdown on password sharing from next year. Subscribers will be given the ability to open subaccounts for family and friends, creating a further new revenue stream.
REMOVING SUBSCRIBER GUIDANCE
Given the changes to the subscription model and potential for new revenue streams Netflix said it would no longer provide the market with guidance on new subscribers.
Disclaimer: AJ Bell referenced in this article owns Shares magazine. The editor of the article (Daniel Coatsworth) owns shares in AJ Bell.
