Netflix audience continues to shrink

Not for the first time this year, Netflix missed market forecasts, but instead of a repeat of the headlong sell-offs in February and April, this time saw the shares rise.

The streaming giant said it lost 970,000 subscribers in the three months to June 30, thereby averting the worst-case scenario forecast by the company of a much larger loss.

Netflix had warned in April that it expected to lose 2 million customers in the June quarter, shocking investors and raising questions about its long-term growth prospects.

Netflix estimated its new customer additions for the September quarter would amount to 1 million. Optimistic Wall Street analysts were expecting 1.84 million.

Netflix still had nearly 221 million paying subscribers around the world at the end of June.

Investors ignored that so-called miss (according to Reuters and other media) and sent the shares up 10% at one stage in afterhours trading. They were still up more than 8% at 8am Sydney time.

That was after a 5% plus rise in the normal session as the wider market rose more than 2% in the strongest day’s trading for more than a month.

Analysts welcomed the news and the modest estimates for the third quarter and wondered about Netflix’s plans for an ad supported streaming tier from early 2023.

The company said “We’ll likely start in a handful of markets where advertising spend is significant… Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering.

“So, our advertising business in a few years will likely look quite different than what it looks like on day one.”

But it warned that the US strong dollar was also hitting revenue booked from subscribers abroad (as have other US multinationals like IBM and Oracle, Microsoft and Apple).

Netflix said the strong US dollar hit revenue, which was up 9%. Revenue would have increased by 13% without the foreign exchange impact, the company said.

In the usual quarterly letter to shareholders, the company said it had further examined the slowdown, which it had attributed to a variety of factors including password sharing, competition and the sluggish economy.

Revenue for the quarter rose to $US7.970 billion from $US7.342 billion. The stronger dollar cut revenue by $US339 million in the quarter which would have put the total around $US8.3 billion, a record high.

Net profit was $US1.441 billion for the quarter, up from $US1.353 billion in the June quarter of 2021.

The company singled out its Asia Pacific (APAC) business for special mention (which includes Australia).

Netflix said the APAC business grew revenue 23% year over year, excluding foreign exchange (F/X). At over $US900 million of revenue, APAC is approaching the size of our Latin American business.

“We added 1.1 million paid memberships in the region (vs. 1.0 million in the same quarter of 2021). Average Revenue (ARM) in APAC fell 2% year over year on a F/X neutral basis, due to the impact from our price decrease in India last December as well as plan mix, which was partially offset by higher ARM in Korea and Australia. Excluding India, APAC ARM grew 4% year over year on a

Subscriber numbers fell in the US and Canada by 1.3 million in the quarter.

Netflix chopped hundreds of jobs in the quarter which cost $US150 million.

“We’ve adjusted our cost structure for our current rate of revenue growth. This resulted in approximately $70 million of severance costs and an $80m non-cash impairment of certain real estate leases primarily related to rightsizing our office footprint,” the company said in the earnings release.