Netflix Inc on Tuesday averted its own worst-case scenario of subscriber losses, posting a nearly 1 million drop from April through June, and predicted it would return to customer growth during the third quarter. Also Read - Netflix’s upcoming ad-supported plan won’t include all of the content on the platform
Shares, which have fallen roughly 67 percent this year on concerns about the company’s long-term prospects, rose eight percent in after-hours trading following the results. Investors took the forecast as a signal that Netflix could still find new subscribers despite a rocky global economy and signs of saturation in its biggest market, the United States and Canada. Also Read - Netflix will test a new ‘add a home’ feature to charge users for password sharing
The world’s largest streaming service said it plans to launch its ad-supported option next year. It also warned that the strong dollar was hitting revenue booked from subscribers abroad. Also Read - Netflix announces second edition of its virtual fan event Tudum
The company had said in April it expected to lose two million customers in the second quarter, shocking Wall Street and raising concerns that the streaming TV boom had come to an abrupt end. read more The losses came in at about half that, at 970,000.
“Our excitement is tempered,” Chief Executive Reed Hastings said in a post-earnings interview posted on YouTube, given that Netflix still lost subscribers. “But looking forward, streaming is working everywhere. … We’re very bullish on streaming.”
Hastings credited new episodes of the science-fiction series “Stranger Things,” the most-watched English-language show in Netflix history, with helping to stave off more defections.
Netflix forecast customer additions for July through September to hit 1 million, while Wall Street analysts on average were expecting a forecast of 1.84 million, according to analysts polled by Refinitiv.
“The stock is up because (analyst) downgrades all made a big deal out of slowing growth,” Wedbush Securities analyst Michael Pachter said, noting that Netflix was cutting costs and expected free cash flow to grow substantially next year.
Shares of other streaming companies rose slightly after the Netflix report. Roku Inc stock gained 2.7 percent while Walt Disney Co and Paramount Global were each up about one percent.
After years of red-hot growth, Netflix’s fortunes changed as rivals including Disney, Warner Bros Discovery and Apple Inc invested heavily in their own streaming services.
Netflix lost 1.3 million customers in the United States and Canada in the second quarter, and 770,000 in Europe, the Middle East and Africa. That was offset by a gain of nearly 1.1 million members in the Asia/Pacific region.
In a letter to shareholders on Tuesday, Netflix said it had further examined the recent slowdown, which it attributed to a variety of factors including password-sharing, competition and a sluggish economy.
“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content and marketing as we’ve done for the last 25 years, and to better monetize our big audience,” the letter said.
One way the company plans to earn more from members is by limiting password-sharing. The company is testing two options in Latin America.
It also is working to build on the popularity of “Stranger Things” and seeking to turn some of its biggest successes into franchises.