Netflix Adds 1.75 Million New Subscribers in Q1 2023 After Password Sharing Crackdown, Ad-Supported Tier

Netflix serves as a bellwether for the streaming industry, in which growth has slowed as competition has heated up.

By Reuters | Updated: 19 April 2023 12:06 IST

Photo Credit: Reuters

Netflix added 1.75 million subscribers in the quarter

Highlights

A year ago, Netflix lost 200,000 subscribers
Netflix launched a monthly streaming plan with advertising for $6.9
Disney's Hulu and Disney+, and HBO Max also have ad-supported options

Netflix beat Wall Street earnings estimates for the first quarter but offered a lighter-than-expected forecast on Tuesday, demonstrating the challenges the mature streaming service faces in its pursuit of growth.

The company said it shifted a wider launch of a plan to crack down on unsanctioned password sharing into the second quarter to make improvements, delaying some financial benefits, but said it was pleased with results so far.

As the streaming video pioneer faces signs of market saturation, it is looking to new ways to make money, such as the password crackdown and a new ad-supported service.

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Revenue and earnings for the first quarter came in roughly in line with the average analyst estimates from Refinitiv. Earnings per share hit $2.88 (roughly Rs. 200) with revenue of $8.162 billion (roughly Rs. 67,000 crore).

"We are growing and we are profitable," Co-Chief Executive Ted Sarandos said in the company's post-earnings video interview. "We have a clear path to accelerate growth in both revenue and profit, and we're executing it."

Shares of Netflix dropped as much as 11 percent in after-hours trade following the report but recovered to gain 1.4 percent.

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Netflix serves as a bellwether for the streaming industry, in which growth has slowed as competition has intensified.

From January through March, Netflix added 1.75 million streaming subscribers, missing analyst estimates of 2.06 million additions.

Analyst Paolo Pescatore of PP Foresight described the first- quarter results as mixed.

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"Netflix is a mature business reinforcing less reliance on subscriber growth. However, this metric still moves the needle for key stakeholders," he said.

The company began rolling out its solution for password-sharing - offering a "paid sharing" option - in 12 countries in February but is delaying expansion.

"We believe it will result in a better outcome for our members and our business," the company said. Netflix also said it was "on track to meet our full year 2023 financial objectives."

The clampdown on password sharing will begin in the United States during the current quarter, Netflix said.

For April through June, the company forecast $8.242 billion (roughly Rs. 67,700 crore) in revenue and $2.86 (roughly Rs. 230) in diluted EPS. Wall Street had been projecting $8.476 billion (roughly Rs. 69,700 crore) for revenue and $3.05 (roughly Rs. 250) for diluted EPS.

Netflix also is moving into live streaming. The company angered fans of dating show "Love is Blind" on Sunday when a reunion special that was meant to be shown live was unavailable. The mishap was due to a "bug" that has been fixed, Co-CEO Greg Peters said on Tuesday.

A year ago, Netflix lost 200,000 subscribers - its first subscriber decline in more than a decade, sending its stock reeling and resetting Wall Street's expectations for the sector.

Netflix added nearly 9 million subscribers in 2022, half as many as the 18 million gained in the prior year, with much of that growth coming from Asia, notes research firm MoffettNathanson. The gains it made in Asia and Latin America have impacted the average revenue per user, spurring Netflix to make changes to its business model, the firm said.

The company introduced a lower-priced version of its service with ads in 12 countries in the fourth quarter.

UBS media analyst John Hodulik wrote that the password- sharing crackdown could well fuel Netflix's nascent advertising business, as it drives these "sharers" to the lower-priced version of the service.

Sarandos said Netflix hopes Hollywood studios can reach a "fair and equitable" deal with writers to avoid a strike, but he also noted the company has access to programming from around the world that it can offer if US-based production is disrupted.

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