Netflix navigates subscriber adds and subscriber ads in Q3

Netflix's subscriber loss in the second quarter of 2022 was a short-lived blip as the streaming giant bounced back to add 2.41 million subs in Q3 2022. That result pushed Netflix's worldwide total to 223.09 million.

Netflix's Q3 subscriber take didn't come anywhere near the 4.38 million subs it added in the year-ago period, but the result handily beat expectations that Netflix would add only about 1 million subs in the period. The better-than-expected result, coming off a Q2 in which the company lost 970,000 subs, caused Netflix shares to rise more than 13% in after-hours trading Tuesday.

Netflix doesn't expect its new ad-supported option, set to launch in a dozen countries next month, to make a material impact in the fourth quarter of 2022.  
(Source: Netflix)
Netflix doesn't expect its new ad-supported option, set to launch in a dozen countries next month, to make a material impact in the fourth quarter of 2022.
(Source: Netflix)

Broken down by region, Netflix added about 100,000 streaming subs in the US/Canada region for a total of 73.39 million. It added 570,000 in the EMEA (Europe, Middle East and Africa) region for a total of 73.53 million and tacked on 310,000 in the Latin America region for a total of 39.94 million. The company also added 1.43 million in the Asia-Pacific region for a total of 36.23 million.

Netflix expects to add 4.5 million streaming subs in Q4 2022 and end the year with about 227.59 million subs worldwide.

On the financial front, Netflix generated Q3 revenues of $7.92 billion, up 5.9% from $7.48 billion in the year-ago period. The company expects Q4 2022 revenues to reach $7.77 billion, up just 0.9% year-over-year. In its Q3 2022 investor letter (PDF), Netflix attributed the sequential revenue decline to the appreciation of the US dollar, which "remains a significant headwind for us" in international markets and among US-based multinationals.

Netflix said it's "very optimistic" about a new ad-supported option that will launch in a dozen countries in November. However, the company does not expect "a material contribution" from that offering in Q4 2022.

The new offering, called Basic with Ads, will sell for $6.99 per month in the US but will not come with the full Netflix library as the company continues to iron out distribution rights for the ad-supported fare.

"Our aim is to give our prospective new members more choice – not switch members off their current plans," Netflix said. "Members who don't want to change will remain on their current plan, without ads, at the current price."

Guidance shifts to revenues

Netflix noted that revenues are becoming its primary top-line metric as it develops new revenue streams such as advertising and paid sharing. As such, starting with its Q4 2022 letter, the company will continue to provide guidance on metrics such as revenues, operating income and net income, but not on paid membership.

On the paid sharing side, Netflix expects to roll out that capability more broadly in early 2023 and is pushing ahead with a way for subs to transfer their Netflix profile to their own account. That will help sharers manage their devices and more easily create "extra member" sub-accounts, if they want to pay for family or friends, the company said.

Netflix also noted that it is approaching the one-year anniversary of a gaming launch focused on mobile platforms, with that time used primarily to establish the infrastructure and see how subs interact with games. The company, which now offers about 35 games and has 55 in development, said it's seeing "some encouraging signs" that the games are leading to higher retention.

The category is a "multi-year journey for us to learn how to please game players," Netflix said.

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— Jeff Baumgartner, Senior Editor, Light Reading

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