Netflix shares rose after announcing a record loss in subscribers. This is why!

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Netflix today released its second quarter results, which showed a record drop of 970,000 subscribers. Some consider this a big win for the video streamer, as the company forecast last quarter it would lose 2 million subscribers over the three months ended June. Netflix now has 220.67 million subscribers and expects to add another million in the current quarter ending in September.

Growth in Netflix membership numbers tends to decline

The annual growth in the number of paid streaming subscriptions shows a downward trend. During the second and third quarters of 2021, that statistic increased by 8.4% and 9.4%, respectively. But in the past three quarters, paid streaming subscriptions grew by 8.9%, 6.7% and 5.5%. And Netflix expects growth to continue to slow to just 3.8% in the third quarter of this year.

Revenue growth is also slowing, with quarterly increases declining from 19.4% for the second quarter of 2021 to 16.3% (Q3 21), 16% (Q4 21), 9.8% (Q12 22), 8, 6% (Q22 22), and an estimated 4.7% for the current quarter. In an effort to pull the strings, Netflix has fought harder to prevent password sharing, has laid off 450 employees and plans to launch an ad-supported, lower-cost service tier early next year in partnership with Microsoft.

In a letter to subscribers released today, Netflix not only announced its cheaper ad-supported tier, but also revealed that its new “add a home” feature, designed to reduce password sharing, would cost an additional $3 per month for a household to share their service with another household. In the letter, the company wrote about the ad-supported tier: “We will likely start in a handful of markets where ad spend is significant. Like most of our new initiatives, our intention is to roll it out, listen and learn, and repeat quickly to improve the offering. So our advertising activity will probably look very different in a few years from what it looked like on day one.”

Wall Street investors reacted very optimistically to the report

For the last quarter, Netflix grossed $8 billion with net income of $1.44 billion or $3.20 per share. That was a net increase of 6.5% year-over-year, while earnings per share rose 7.7% from the second quarter of 2021 to the second quarter of 2022. Wall Street liked the report showing Netflix (NFLX) stocks during regular trading hours were up $10.71 or 5.61% to $201.63. In after-hours trading, the stock rose another $15.21 or 7.54% to $216.84.

As usual in this industry, content is king and Netflix continues to produce big budget movies, as you would normally expect in the theater. The fourth season of “Stranger Things” was a huge hit for the video streamer as viewers flocked to the latest version of the show, which was nominated for several Emmy awards.

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