Netflix reported better-than-expected earnings on Tuesday, seeing a smaller exodus of viewers than originally forecast even as the platform struggles to maintain its meteoric pandemic growth.
Though Netflix reported its second straight quarterly drop in subscriber growth, and lost 1 million viewers in the second quarter of 2022, that number was lower than the 2 million it had projected in its previous report. Shares were up 10% in after-hours trading.
Netflix’s total revenue for the first quarter of 2022 was $7.97bn, missing analysts’ expectations of $8.04bn. In a letter to investors, Netflix said generating more revenue growth is a current focus.
“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.
Netflix shares have fallen roughly 67% this year. The company cited additional headwinds for the slowdown, including password sharing, competition and a sluggish economy. It also said the strong dollar was impacting subscribers outside the US.
To offset the decline, Netflix for the first time has launched a cheaper version of its platform that includes advertising, a move that Jesse Cohen, senior analyst at Investing.com, said may serve as a much-needed growth catalyst.
“We expect advertisers seeking the chance to reach younger viewers who have abandoned traditional television will likely allocate a greater part of their marketing budget to advertise on Netflix in the future,” he said.
Tuesday’s report is the first since April, when the company’s value dropped 35% after Netflix revealed it had lost more than 200,000 subscribers in the first three months of the year. Experts say the company is not yet out of the woods as it seeks to stabilize its decline.
“Netflix is still the leader in video streaming but unless it finds more franchises that resonate widely, it will eventually struggle to stay ahead of competitors that are after its crown,” said Ross Bene, an analyst at market research firm Insider Intelligence.
The report did not address concerns of more layoffs, after the company cut 150 jobs in the previous quarter. Other major tech companies, including Spotify and Google’s parent company, Alphabet, have announced hiring slowdowns and layoffs in recent weeks.
Netflix and other streaming companies experienced explosive growth early in the pandemic, when millions were stuck in lockdowns, but the company has struggled to maintain its trajectory. It added more than 36 million subscribers during the first year of the pandemic and its share rose 86% from the end of 2019 through 2021, while the S&P 500 climbed 48%.
But the streaming market has grown crowded, with a number of platforms battle for a finite amount of viewers. Netflix is also vying with legacy media competitors dumping large amounts of funding into original programming. Disney, which owns ESPN, Hulu and Disney Plus, spent $33bn on content this year.
In a call with investors on Tuesday, executives said they would invest more heavily in original productions, forecasting $17bn spent on Netflix-made content over the next few years.
“It’s important that Netflix is seen as a tremendous value in tough economic times,” said CEO Ted Sarandos. “We have a lot of great new content coming out.”
The earnings report also contained statistics about its most popular originals, including season four of Stranger Things. The show was its most viewed release to date, attracting 1.3bn hours of viewing in its first 28 days on the platform: the largest figure Netflix has seen to date for an English-language TV show.
Netflix’s earnings report comes amid a wider downturn in the tech industry, accompanying market-wide fears of recession as inflation continues and Silicon Valley struggles to maintain its pandemic momentum. Investors will be watching closely as Meta, Google, Twitter and Tesla have earnings calls in the next weeks.
Reuters contributed reporting
