Netflix delivered its Q2 earnings report on Tuesday, which revealed that the streaming giant lost 970,000 subscribers despite the launch of Stranger Things 4 in May. The result was actually better than expected, as analysts had predicted an approximate loss of 2 million subs.
Either way, the furor that has surrounded Netflix’s latest earnings report has been totally overblown, as it makes little difference whether the streamer has 221.64 million subscribers or 220.67 million, as they do now. They still have a healthy lead over their competitors. Furthermore, Netflix said it expects to add 1 million subscribers in Q3.
But first, what’s the reason for this current subscriber loss? Well, go back to the last paragraph. Competitors manufacture this thing called competition, and there’s simply more competition for eyeballs these days, with Apple TV+, HBO Max and Hulu all far more consistent when it comes to quality. Sure, Stranger Things is a juggernaut, but it only comes out every 2-3 years and hasn’t spawned a spinoff yet. In the last few months, HBO and HBO Max have delivered Season 2 of Hacks, Season 3 of Barry, The Staircase, We Own This City, and Nathan Fielder‘s The Rehearsal. Netflix, for all of the billions it spends on programming, simply doesn’t have that kind of hit ratio.
Anticipating more competition and thus, subscriber churn, Netflix made the decision to spread out Stranger Things 4 over two quarters, holding the final two episodes for early July, or Q3, as Q2 covers April 1 to June 30. It quickly became Netflix’s most-watched English-language series, and since the bulk of Season 4 was released on May 27, the show was eligible for the current Emmy cycle, and it picked up 13 nominations, including one for Outstanding Drama Series.
Netflix stock closed on Tuesday at $201.63 per share, and the market will reopen on Wednesday morning. The company announced that its Q2 revenue hit $7.97 billion (8 percent higher than last year’s Q2) in part due to a “stronger U.S. dollar,” while net income came in at $1.44 billion. Netflix’s Q2 performance follows a first-quarter report that saw Netflix lose 200,000 subs, including 700,000 Russian customers whose service was cut off following the country’s invasion of Ukraine.
Elsewhere, Netflix announced that it took a $70 million charge for severance costs after laying off nearly 500 staffers in Q2 on the heels of that disappointing Q1 report. Additionally, Netflix took an $80 million non-cash impairment charge for “certain real estate leases primarily related to rightsizing our office footprint.” In other words, they didn’t need all that office space anymore, especially with more people working remotely around the world. $150 million is just the cost of restructuring these days, folks. Thankfully, Netflix’s operating profit and operating margin remain “slightly ahead of our guidance forecast,” the company said.
Going forward, Netflix plans to introduce a cheaper ad-supported tier and crack down on password sharing. It also recently shut down its ad agency, Palisades Media Group, and chose Microsoft as its partner in building that ad-supported tier, which is expected to launch in early 2023.
The other thing you can expect Netflix to do is to use the money it generates with those ads to actually market its high-impact titles. Yes, Reed Hastings and Ted Sarandos still want you to watch big-budget Netflix movies on the service, but I wouldn’t be surprised if the company reassessed its stance on theatrical releases and began to sink more money into proper marketing campaigns for its larger films, such as The Gray Man, which debuts Friday after playing exclusively in theaters this past week (not that you’d know).
In other Netflix news, the company acquired the Australian animation and VFX studio Animal Logic, which has worked on The Lego Movie franchise as well as Happy Feet and Peter Rabbit. The deal indicates that Netflix plans to ramp up its animated efforts in an effort to challenge Disney+ for younger audiences.
