Netflix: Subscribers leap as ad-backed service draws in cash-strapped consumers - reaction

Netflix’s subscriber base is on the rebound as a shift to include ads in a cheaper version of its video streaming service appears to be paying off amid the cost-of-living crisis, but the movie firm is facing stiff competition.

The US group revealed a gain of 7.7 million subscribers during the closing three months of 2022, a period that included the debut of an ad-supported option that works out far cheaper than its commercial-free monthly plans. The solid performance followed subscriber gains that topped analysts’ modest expectations during a July-September period that followed Netflix’s second consecutive quarter of customer losses. However, the upturn in subscriber numbers did not boost profits largely because the strong dollar weighed on international results.

Michael Hewson, chief market analyst at CMC Markets UK, said the last few months have been positive ones for Netflix’s share price, having hit five-year lows last May. “The shares have surged over 75 per cent since then, although they are still over 50 per cent below the record highs seen in 2021,” he noted. “When the company reported in Q3 there was some scepticism that the addition of an ad-tier might cannibalise their existing user base, as the streaming market becomes ever more competitive. One of the big concerns for investors has been how Netflix, which doesn’t have any other revenue streams, will be able to cope against its deeper pocketed rivals of Amazon, Disney, Apple and now Paramount.

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“With such a big increase in subscriber numbers it’s perhaps surprising that revenues weren’t higher, which suggests that perhaps there was some cannibalisation because of the roll-out of the new ad tier service.”

Having regained its momentum, Netflix also announced its co-founder Reed Hastings will relinquish the title of co-chief executive, completing a transition that began in July 2020 with the appointment of its programming chief, Ted Sarandos, as co-CEO. Greg Peters, the group’s chief operating officer, will join Sarandos as co-CEO while Hastings becomes executive chairman. Hastings had been Netflix’s CEO for more than 20 years after taking over the role from fellow company co-founder Marc Randolph in the late 1990s.

Sophie Lund-Yates, lead equity analyst at investment platform Hargreaves Lansdown, said: “After a huge beat in subscriber numbers in the final quarter, Netflix chief and co-founder, Reed Hastings, will step down. That comes as Netflix faced enormous challenges and legitimate threats to market share in recent trading periods after the pandemic pulled forward growth from down the line. As Netflix transitions into its next chapter, investors will want to know exactly how the media giant intends to grow its prominence with users over the long-term, while the upwards march of other platforms and social media continue to vie for our attention.”

In a blog post, Hastings said he, Sarandos and Peters have “all learned how to bring out the best in each other. I look forward to working with them in this role for many years to come”.

The California-based company earned $55.3 million (£44.6m) during the fourth quarter, a 91 per cent decline from the same time in the prior year. Revenue rose 2 per cent from the previous year to $7.85 billion (£6.34bn), a modest gain that suggests some ongoing subscribers may have switched from a more expensive plan to the lower priced ad-backed option.

Office workers watching the Duke and Duchess of Sussex's controversial documentary being aired on Netflix.



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