Netflix's subscriber growth is slowing, but its profit and stock price
are still surging
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[October 18, 2024] By
MICHAEL LIEDTKE
Netflix on Thursday reported that its subscriber growth slowed
dramatically during the summer, a sign the huge gains from the
video-streaming service’s crackdown on freeloading viewers is tapering
off.
The 5.1 million subscribers that Netflix added during the July-September
period represented a 42% decline from the total gained during the same
time last year. Even so, the company’s revenue and profit rose at a
faster pace than analysts had projected, according to FactSet Research.
Netflix ended September with 282.7 million worldwide subscribers – far
more than any other streaming service.
The Los Gatos, California, company earned $2.36 billion, or $5.40 per
share, a 41% increase from the same time last year. Revenue climbed 15%
from a year ago to $9.82 billion. Netflix management predicted the
company's revenue will rise at the same 15% year-over-year pace during
the October-December period, slightly than better than analysts have
been expecting.
The strong financial performance in the past quarter coupled with the
upbeat forecast eclipsed any worries about slowing subscriber growth.
Netflix's stock price surged nearly 4% in extended trading after the
numbers came out, building upon a more than 40% increase in the
company's shares so far this year.
“We had a plan to reaccelerate growth and we delivered on that plan,”
Netflix co-CEO Ted Sarandos said during a video call discussing the
results.
The past quarter’s subscriber gains were the lowest posted in any
three-month period since the beginning of last year. That drop-off
indicates Netflix is shifting to a new phase after reaping the benefits
from a ban on the once-rampant practice of sharing account passwords
that enabled an estimated 100 million people watch its popular service
without paying for it.
The crackdown, triggered by a rare loss of subscribers coming out of the
pandemic in 2022, helped Netflix add 57 million subscribers from June
2022 through this June — an average of more than 7 million per quarter,
while many of its industry rivals have been struggling as households
curbed their discretionary spending.
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Netflix’s gains also were propelled
by a low-priced version of its service that included commercials for
the first time in its history. The company still is only getting a
small fraction of its revenue from the 2-year-old advertising push,
but Netflix is intensifying its focus on that segment of its
business to help boost its profits.
Netflix co-CEO Greg Peters predicted the company's ad sales will
double during the next year while remaining a just a sliver of total
revenue that will continue to be propelled by subscription fees.
“We've got a lot of work ahead of us,” Peters said in a video call
with investors. But he predicted Netflix's foray into ads would
eventually prove to be as successful as its recent crackdown on
password sharing was.
Although he was impressed by most of Netflix’s report, Forrester
Research analyst Mike Proulx called the slowdown in subscriber
growth “concerning,” especially in the U.S., where the company is
finding it increasingly difficult to attract more viewers.
“That’s why accelerating growth via advertising becomes paramount to
Netflix’s go-forward strategy,” Proulx said.
As part of its evolution, Netflix has been increasingly
supplementing its lineup of scripted TV series and movies with live
programming, such as a Labor Day spectacle featuring renowned
glutton Joey Chestnut setting a world record for gorging on hot dogs
in a showdown with his longtime nemesis Takeru Kobayashi.
Netflix will be trying to attract more viewer during the current
quarter with a Nov. 15 fight pitting former heavyweight champion
Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and
two National Football League games on Christmas Day.
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