After two quarters in a row of subscriber losses, Netflix on Tuesday reported third-quarter subscriber gains of 2.4 million, coming in above the streaming giant’s own projections.
The 2.4 million figure is for net additions globally and bests Netflix’s earlier expectation of adding 1 million subscribers in the quarter. It also beats out Q1 and Q2 net losses of 200,000 and nearly 1 million, respectively. However, it’s still well below the 4.4 million it added in the third quarter of 2021.
In the U.S. and Canada, Netflix’s most penetrated market, gains were the most tepid versus other regions, as the streamer added 104,000 net subscribers. The figure is similar to what Netflix added in the market in the same period a year ago, and better than the U.S. and Canada in the first and second quarter, which saw respective subscriber losses of 636,000 and 1.29 million. Netflix ended the third quarter with 73.39 million U.S./Canada paid memberships.
For its other regional breakouts, Asia-Pacific (APAC) region contributed the most net subscribers, adding 1.42 million memberships in the region. The Europe, Middle East and Africa (EMEA) market added 568,000 Netflix members, while Latin America contributed 312,000 paid subscribers.
Netflix is forecasting higher subscriber additions in Q4 (during which it’s first lower-cost plan with ads will debut), anticipating gains of 4.5 million. That will still be significantly lower than the 8.3 million it added in the fourth quarter of 2021.
As of the end of Q3, Netflix’s global subscriber base stood at about 223 million.
Alongside subscriber adds, Netflix reported $7.92 billion in revenue, up 5.9% year over year but a decrease compared to Q2. Netflix said the sequential decline in revenue was entirely due to the impact of foreign exchange (F/X).
Total revenue growth was driven by a 5% increase in average paid memberships and a 1% uptick in average revenue per membership (ARM). Netflix grew U.S./Canada revenue by 11% and average revenue per member by 12%, excluding F/X impacts.
The stronger subscriber growth in APAC also helped grow revenue 19% for the region, but ARM decreased 3% year over year driven partially by lower ARM in India.
Netflix expects revenue growth to slow in Q4 to $7.8 billion – again because of the continued strengthening U.S. dollar. On a constant currency basis Q4 revenue forecasts equate to 9% year over year growth.
Operating income in Q3 totaled $1.5 billion, down from $1.8 billion in the same period a year ago, which the company attributed to appreciation of the U.S. dollar compared to most other currencies in the period. Netflix posted $1.39 billion in net income.
“After a challenging first half, we believe we’re on a path to reaccelerate growth. The key is pleasing members. It’s why we’ve always focused on winning the competition for viewing every day. When our series and movies excite our members, they tell their friends, and then more people watch, join and stay with us,” Netflix wrote in a letter to shareholders.
The letter also zeroed in on positives of Netflix as it plays in an increasingly competitive streaming world. The company said it has higher engagement than any other streamer, with room to grow. For example, it cited stats that Netflix accounts for 8.2% of video viewing in the U.K. – more than 2.3x Amazon and 2.7x Disney+. In the U.S., the SVOD accounts for 7.6% of TV time, 2.6x that of Amazon and 1.4x Disney + Hulu + Hulu Live.
Netflix also suggested its competitors are losing money and pointed to its own operating profit.
“Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard – we estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 to $6 billion annual operating profit.”
Revenue is increasingly coming into Netflix’s focus “as our primary top line metric” the streamer said – rather than subscriber figures. The letter to shareholders said this is especially important in the lead up to 2023 as key, when advertising and new paid models for account sharing come into play – opening up new revenue streams and opportunity for currently unmonetized users.
Netflix is holding a Q3 earnings webcast later on Tuesday, where it’s likely to address plans for the upcoming ad-supported plan. Just last week the streamer announced its “Basic with Ads” plan will debut November 3 in the U.S. at a price of $6.99 per month. It’s launching in 12 market total, including first in Canada and Mexico on November 1. More details on the ad-supported plan here.
According to Netflix, the 12 markets account for approximately $140 billion of brand advertising spend across TV and streaming – or over 75% of the global market.
“The reaction from advertisers so far has been extremely positive and we believe that more choice, especially for more price conscious consumers, will translate into meaningful incremental revenue an operating profit over time,” Netflix told shareholders. “That said, it’s still very early days and, since we’re keeping our existing plans ad-free, it will take us time to build up our membership base and the associated ad revenue.”