Netflix experienced a surge in subscribers during the spring, following its crackdown on password-sharing. But can the streaming giant maintain its momentum?
Netflix enjoyed its biggest springtime spurt in subscribers since the early days of the pandemic three years ago, providing the latest sign that a recent crackdown on password sharing and the rollout of a cheaper subscription option are paying off.
According to the latest quarterly financial results released on Wednesday, Netflix added 5.9 million subscribers between April and June, surpassing analysts' expectations of around 2.2 million new subscribers.
The total number of worldwide subscribers reached 238.4 million by the end of June.
Investor concerns amidst ongoing entertainment industry strikes
However, despite the positive news, investors seemed somewhat dissatisfied, leading to an 8% drop in Netflix's stock price during extended trading on Wednesday.
The concerns might have been sparked by management's comments in a shareholder letter, highlighting the “competitive battle” unfolding against the backdrop of ongoing strikes by both the writers and actors union in the U.S., which threaten to clog the pipelines feeding entertainment to streaming services.
However, market experts suggest that unlike many of its American competitors, Netflix is less likely to be affected by the strikes, thanks to its global production footprint, which includes major studio spaces in the UK.
Can Netflix sustain its current growth pace?
Renowned growth investor Louis Navellier said Netflix now appears “locked and loaded” again after going through a turbulent stretch that included losing 1.2 million subscribers during the first half of last year.
Even though Netflix has bounced back this year, Investing.com analyst Jesse Cohen believes another slowdown may be coming. “It will be a challenge for Netflix to sustain this pace of subscriber growth in the future,” Cohen said.
But Netflix foresees similar subscriber growth in the upcoming July-September period as it saw in April-June.
This last quarter was the company's most significant spring season growth since 2020, a year when people were mostly confined to their homes due to the pandemic, leading to a surge in streaming consumption.
Netflix phases out cheapest ad-free plan to boost revenue
Continuing its efforts to adapt, Netflix on Wednesday announced the phase-out of its cheapest ad-free plan - a service that costs $10 (€8.90) in the U.S.
The shift appears designed to get more people to switch to the $7 (€6.20) monthly plan that includes commercials in hopes of boosting ad revenue or sign up for its $15.50 (€14.00) monthly standard plan or $20 (€18.00) monthly premium plan.
“There is just tons of work ahead of us, tons of opportunity,” Netflix Co-CEO Greg Peters said during a conference call.
The pricing changes that have already been made helped Netflix boost its second-quarter revenue by 3% from the same time last year to $8.2 billon (€7.3 billion), falling below analyst forecasts.