Netflix has stopped the bleeding, adding 2.41 million new paid subscribers in Q3 after shedding subs over the first half of the year. The streamer didn’t attribute the rise to one show in particular, though Q3 notably featured the premieres of Dahmer and Stranger Things 4 Volume 2.
Netflix also announced that it expects to gain 4.5 million new subscribers in Q4. Wall Street responded in kind, as shares in the company rose 14 percent on its upbeat performance and forecast.
Of course, Q4 is when Netflix plans to launch a lower-priced subscription tier that will be supported by ads. Netflix Basic With Ads will launch Nov. 3 at $6.99 per month in the U.S., making it three dollars cheaper than a Basic plan without ads. That’s a savings of $36 dollars per year.
Netflix will be rolling out similar ad tiers in 11 other countries — Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico, South Korea, Spain, and the U.K.
It’s unclear how many of the 4.5 million new subs Netflix has forecast for Q4 will sign up for the ad-supported plan, but given that the launch is coming in the middle of the quarter, it isn’t expected to sway the figure too much, though in its Q3 letter to shareholders, Netflix said it remains “very optimistic about our new advertising business” and it anticipates “growing our membership in that plan gradually over time.”
Obviously, not everyone who signs up for the ad-supported tier will be a new subscriber, as there will surely be millions of current subscribers who downgrade their plans and agree to watch a few ads each hour if it means saving a few bucks. Netflix COO Greg Peters has previously said that the revenue per subscriber on the ad-supported tier will be “neutral to positive.”
With 2.41 million new paid subs, including 100,000 in the U.S. and Canada — Netflix had previously forecast just 1 million new subs — the streamer now boasts an industry-leading 223.1 million subscribers worldwide as of the end of September.
Netflix’s revenue for Q3 hit $7.93 billion, which was up 5.9 percent from last year’s Q3 report, and higher than Wall Street estimates, which had pegged the streamer’s Q3 revenue at $7.84 billion.
Clearly, Wall Street is singing a different tune on Tuesday after freaking out about Netflix earlier this year, especially with the streamer expecting a strong finish. However, that Q4 forecast will be its last for the foreseeable future, as Netflix previously announced it would no longer share projected subscriber targets in upcoming earnings reports.
Yes, Netflix has to be open about its performance, but it doesn’t necessarily have to be open about what it thinks that performance will be. In January, when the streamer releases its Q4 2022 earnings report, it won’t provide any guidance in terms of future subscriber targets, though it will continue to provide guidance for revenue, operating income, operating margin, net income, EPS, and fully diluted shares outstanding for the following quarter, as well as total streaming subscribers and occasional regional figures.
“As discussed in previous letters, we are increasingly focused on revenue as our primary top-line metric,” Netflix said in its Q3 letter to shareholders. “This will become particularly important heading into 2023 as we develop new revenue streams like advertising and paid sharing, where membership is just one component of our revenue growth.”
Netflix had lost nearly 1.2 million subscribers over the course of Q1 and Q2, with global inflation, new streaming competition, and a lack of marquee titles among the chief suspects for that brief hemorrhage. The company continues to crack down on password sharing as it attempts to turn those viewers who are freeloading into paying subscribers.
