2023-04-19 01:29:55
Netflix presented a mixed picture when it presented business results on Tuesday after the market close. The streaming service reported slightly higher-than-expected profits, but managed to add fewer subscribers than hoped. He also gave a cautious outlook for the second quarter. The share price initially fell significantly in after-hours trading, but then recovered later on.
In the first quarter, Netflix increased its subscriber base by 1.75 million to 232.5 million. Analysts had expected more than two million on average. After all, Netflix was in a better position than a year ago. At the time, the company experienced an unusual drop in its subscriber count, and three months later it reported another drop. However, it then recovered from this dip and managed to grow again in the second half of the year.
Netflix is happy with ad-supported subscriptions
Amidst the slowdown over the past year, Netflix has embarked on major strategic shifts that are now beginning to be felt. For example, in November, the company launched a cheaper subscription that allows users to see ads. This was a radical about-face, as in the past it had always opposed such an ad-supported service. In Germany, this subscription with advertising costs 4.99 euros per month, the cheapest ad-free service is available for 7.99 euros.
Netflix has now expressed satisfaction with the “contribution” the new ad-supported subscriptions are making to the business, but admitted it’s still in the very early stages. The company highlighted that very few customers switched from the more expensive subscriptions to the cheap ones with ads. This should be seen as a positive signal as there were fears that such a cannibalization effect could occur. Another encouraging statement in this regard was that, according to the company, the ad-supported subscription in the US as a whole – that is, taking into account the subscription fee and advertising revenue – generates a higher revenue per user than the more expensive services without advertising.
Sharing passwords should be made more difficult
Another new initiative is to increase billing for free users who use passwords from paying customers. The company has tolerated widespread password sharing during a period of rapid growth, especially since the free users also helped spread the word about its shows. But now it wants to take stronger action and make it more difficult to share passwords. This is done by identifying a household as the primary location for a Netflix account. Existing free users outside the household can become paid customers in a number of ways: either they take out their own subscriptions, or they are added as an additional member to an existing account for a fee. With all of these new restrictions, Netflix wants to ensure that all legitimate users on an account can continue to use the service when they travel.
This new system has been trialled in Latin American countries for the past year, and in the first quarter it was rolled out in four additional markets, including Canada and Spain. In the second quarter, it should now come across the board, including in the USA. Netflix says there were initially some subscription cancellations in testing so far. But as soon as previous free users become paying customers, the effect on user numbers and sales is positive.
End of an era: DVD shipments are discontinued
In the first quarter, Netflix increased its revenue by 4 percent to $8.2 billion, which was roughly in line with expectations. The company reported net income of $1.3 billion, down 18 percent from a year earlier, but unlike most streaming services, Netflix remains clearly profitable. Earnings per share were also slightly higher than expected.
For the second quarter, the company is forecasting a 3 percent increase in revenue to just over $8.2 billion, which was slightly below expectations. The number of new subscribers should be similar to the first quarter.
Netflix also announced the end of an era on Tuesday: the company said it would stop shipping DVDs in September. This is the business it once started in the US before shifting its strategy to streaming over the internet. In foreign markets like Germany, Netflix focused on streaming from the start. DVD shipping in America has been shrinking for years, and many Netflix subscribers may not even be aware that it still existed. In total, Netflix says it has shipped more than five billion DVDs in its history.
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