Netflix saw a surge of new subscribers in the second quarter of 2023, but the streaming giant’s full-year outlook remains uncertain after it reported lower-than-expected revenue and profit.
The streaming service added nearly 6 million subscribers during the three-month period ending in June, a surprise bump in subscriber count following the company’s recent password crackdown and its rollout of an ad-supported tier.
“In May, we successfully launched paid sharing in 100+ countries, representing more than 80% of our revenue base,” Netflix said in a July 19 letter to shareholders.
Not only did Netflix add 5.9 million new paid subscribers, but according to the company’s financial report, the company’s revenue in each region is now “higher than pre-launch, with sign-ups already exceeding cancellations.”
Analysts surveyed by FactSet Research expected Netflix to add only 2.2 million subscribers during the three-month period, nearly a third of the company’s actual results for the quarter, WFAA reported. At the end of June, Netflix had about 238 million subscribers worldwide.
Despite Netflix’s sharp boost in subscriber count, many long-term users have reportedly expressed disappointment in the streaming giant’s shift toward an ad-supported business model and away from the ad-free service the company initially gained traction with.
In fact, Netflix is going all in on its advertising strategy, noting on an earnings call on Wednesday that it would be phasing out its basic ad-free plan for new and rejoining members in Canada, the United States, and the United Kingdom.
During the call, Netflix President Greg Peters broke down the thought process behind the new subscription tiers and the push for advertising dollars.
“[W]hen we drop that basic [ad-free] tier, folks that would have signed up for that tier essentially sort into two tiers. They either take the ads plan, which is that really low attractive entry-level price or they move into the standard plan,” said Peters.
In the letter to shareholders, Netflix explained that advertising revenue would unlock lower price points for customers and allow Netflix to scale its business.
“Building an ads business from scratch isn’t easy and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream,” Netflix said in the report.
The move toward advertising stems from slower growth in the first three months of 2023. During the company’s first-quarter earnings report, Netflix disclosed that it had lost subscribers for the first time in more than a decade, according to The New York Times.
Shares of Netflix have been trading significantly higher since last year. From the company’s year-to-date low of $188.40 to its recent 52-week high of $485.00, Netflix is up more than 150% on the year.
However, shares of Netflix (NASDAQ: NFLX) began to plummet following the report, dropping more than 4% by the close of trading on Wednesday and nearly 9% on Thursday. Netflix shares traded for $437.15 at the close trading on Thursday.