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Netflix's subscriber growth has bounced back during the third quarter, with 2.4 million new subscribers compared to its one million forecast. Co-CEO Reed Hastings said on the company's earnings call: "Thank God we are done with shrinking quarters."
Earlier this year, Netflix reported a loss of 200,000 subscribers which was its first dip in paid subscriptions in over a decade. That also led to the streaming giant mulling ad-supported plans which it eventually launched in 12 countries recently.
In APAC, Netflix's revenue grew 19% to about US$889 million excluding foreign exchange as average paid memberships rose 23% year-over-year. Average revenue per membership (ARM) for the region was -3% year-over-year, excluding foreign exchange, partially driven by lower ARM in India, somewhat offset by higher ARM in Australia and Korea.
The region also had 1.4 million paid memberships during the quarter, albeit a dip from 2.2 million during the same period last year. Meanwhile, EMEA revenue grew 13% while LATMA revenue jumped 19% year-over-year. US and Canada revenue grew 11%.
Netflix faces intense competition in the entertainment and streaming scene, having to deal with rivals such as Disney+, HBO GO, YouTube, and even TikTok. Netflix added that it is hard to build a large and profitable streaming business, saying: "Our best estimate is that all of these competitors are losing money on streaming."
While it's early days, the company said it is starting to see an increased focus on profits, with some raising prices for their streaming services, some reigning in content spending, and some retrenching around traditional operating models which Netflix said may dilute their D2C offering. "Amidst this formidable, diverse set of competitors, we believe our focus as a pure-play streaming business is an advantage," Netflix added in its letter to shareholders.
It also plans to continue investing heavily in marketing, with a particular focus on innovative ways to drive conversation around its titles. For example, its campaigns for Stranger Things S4 and The Gray Man drove more than 9.8 billion and 1.2 billion impressions, respectively, across paid marketing, social media platforms and events. And content for Tudum, its global fan event that ran for its second year in September, generated almost a billion views, marking a 30% increase from last year.
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Overall, Netflix witnessed a 6% year-over-year revenue growth to US$7.9 billion which was driven by a 5% increase in average paid memberships and a 1% rise in ARM. Its operating income for Q3 totalled US$1.5 billion versus US$1.8 billion during the same period last year.
It expects revenue of US$7.8 billion in Q4 2022 and this forecast is driven by its expectation for 4.5 million paid subscribers. It also expects ARM growth for the quarter to be 6% year-over-year. Netflix said that the forecast for its paid subscriptions assumes that the streaming giant will experience its usual seasonality as well as the impact of a strong content slate, counterbalanced by macroeconomic weakness which leads to less-than-normal visiblity.
While Netflix is very optimistic about its new ad business, it does not expect a material contribution in the fourth quarter of 2022 as it is launching its Basic with Ads plan intra-quarter and anticipates growing its membership in that plan gradually over time.
"Our aim is to give our prospective new members more choice - not switch members off their current plans. Members who don’t want to change will remain on their current plan, without ads, at the current price," Netflix said.
The company is adopting a two-pronged approach when it comes to driving revenue and subscriber growth. First with its ad-supported plans and the other by limiting account sharing, which it first began testing last year. Beginning next year, it plans to offer the ability for borrowers to transfer their Netflix profile into their own account, and for sharers to manage their devices more easily and to create sub-accounts, if they want to pay for family or friends. The company expects the profile transfer option for borrowers to be especially popular in countries with Netflix's lower-priced ad-supported plan.
The streaming giant has also released a strong slate of content during the quarter, including season four of Stranger Things, Monster: The Jeffrey Dahmer Story, and Korean drama Extraordinary Attorney Woo. Narco-Saints also proved to be another huge K-content hit among viewers during the quarter while Sintonia was a big hit in Brazil.
It has also been a year since Netflix entered the gaming scene and it is focused in the next few years on creating hit games. Netflix sees a big opportunity around content that crosses between TV or film and games.
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