Netflix Inc. added more than 2 million subscribers in the third quarter after stumbling into 2022 with two consecutive quarterly declines, a rebound that sent shares more than 15% higher in after-hours trading Tuesday.
Netflix NFLX, -1.73% reported a net gain of 2.41 million subscribers in the third quarter, while analysts on average were forecasting 1.1 million net additions, according to FactSet. That follows a decline of roughly 200,000 subscribers in the first quarter and nearly a million in the second quarter, which has led the company to plan massive changes, including a cheaper, ad-supported streaming tier set to arrive in the fourth quarter.
In a letter to shareholders, Netflix executives said they expect 4.5 million new subscribers to join in the fourth quarter, with revenue forecast to grow to $7.78 billion from $7.71 billion a year ago. Analysts on average were estimating revenue of $7.97 billion and a net subscriber gain of 4 million for the fourth quarter, according to FactSet.
“After a challenging first half, we believe we’re on a path to reaccelerate growth,” executives wrote in the letter.
The news sent Netflix shares up about 10% in after-hours trading following the release of the results, after closing with a 1.7% drop at $240.86. The stretch of subscriber declines has filleted Netflix shares, which have swooned 60% so far this year while the broader S&P 500 index SPX, +1.14% has declined 22.8%.
The streaming-video giant’s downturn after a pandemic-boosted surge has only intensified pressure from rival streaming services at Walt Disney Co. DIS, +1.18%, Apple Inc. AAPL, +0.94%, Amazon.com Inc. AMZN, +2.26%, Warner Bros. Discovery Inc. WBD, +4.55%, Comcast Corp. CMCSA, -0.23% and Paramount Global PARA, +1.56%.
A dramatic shift in the video-streaming climate, one in which Disney surpassed Netflix as market leader in July, has prompted a radical makeover at Netflix. Last week, the company announced its long-awaited advertising-supported tier, which debuts Nov. 3 in the U.S. for $6.99 a month. Another 11 countries, including Canada and Mexico, will get the service by Nov. 10. The company has also vowed a crackdown on shared accounts, and is pushing forward on gaming.
For more: Netflix lost its streaming crown to Disney. Here’s how execs expect to win it back.
Netflix announced third-quarter earnings of $1.4 billion, or $3.10 a share, down from $3.16 a share a year ago. Netflix revenue improved to $7.93 billion in the quarter from $7.48 billion in the same period a year ago, but missed diminished expectations. Analysts polled by FactSet expected earnings of $2.14 a share on sales of $7.84 billion, estimates that had dipped in recent days.
Tuesday’s results follow some serious self-reflection among Netflix executives on how to stanch a decline in visits among subscribers that has led to cancellations. Co-CEO Reed Hastings has consulted with staff to find ways to make subscribers visit the platform more frequently, according to reports by The Wall Street Journal and Bloomberg News.
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