Not so long ago, the Wall Street stock market was stunned by such gloomy news from Netflix: between April and June the company lost 970,000 subscribers.
But investors are not embarrassed by the number of customers who have dropped out of the service. In fact, they are even happy.
What’s happening: Netflix (NFLX) shares rose more than 6% versus the stock market on Wednesday after the company reported its latest results. Will the reasoning be linear? It could have been much worse.
“It was a quarter where ‘the less bad news, the better,'” analysts say. Individual investment group in a note to customers.
What’s happening: Netflix has already lowered expectations as much as possible. it is predicted to lose 2 million subscribers in the last quarter after losing 200,000 in the first three months of the year. This made room for surprise, unexpectedly, on the positive side.
“We are talking about a loss of 1 million, not a loss of 2 million,” President Reed Hastings said in a statement to analysts. “So our enthusiasm is overshadowed by less bad results.”
The biggest loss of Netflix subscribers came in its biggest market, the US and Canada, where the streaming service confirmed it lost 1.3 million users in the second quarter.
This was offset by an increase in subscriptions elsewhere, indicating that the company’s investment in foreign language programming is paying off. The release of the fourth season of the popular series “Stranger Things” also gave impetus.
Future Prospects: Netflix still has a lot of work to do to reassure investors that the company is on the right track. To date, its shares have fallen nearly 67%. Shares of other tech companies such as Alphabet, which controls Google, and Facebook Meta were down 21% and 48%, respectively. The S&P 500 is down 17%.
This will lead to major business changes. Netflix has partnered with Microsoft to create a new ad-supported, cheaper option in a bid to win over customers who are more worried about their spending when inflation tightens. Its release is expected early next year.
Furthermore, also trying to stop password sharing. The company estimates that 100 million households use Netflix but don’t pay for the service directly.
“We know this will mean a change for our associate members,” he told shareholders. “Our goal is to find an easy-to-use paid exchange offer that we think will work well for our members and for offers we can launch in 2023.”
Rich Greenfield, an analyst at LightShed Partners, believes Netflix’s move to advertising could be a success.
“Netflix advertising opportunities are real and directly related to the amount of time spent on this streaming service compared to all other services,” he added in his Twitter post.
But projecting this big change will not be easy. Netflix’s entry into the advertising space will not be easy. Competition for viewers among streaming services is tough. And if a large group of subscribers choose the cheapest version to save money, it will reduce revenue even if new users subscribe.
“We urge caution in the belief that Netflix can use ads to increase revenue out of thin air,” Bank of America analysts said in a report released late last month. “The advertising ecosystem is big, complex, expensive, and their ad-using competitors have a long-term advantage over them.”