Netflix’s subscriber growth is picking up again, an early sign that its move to include ads on a cheaper version of its video streaming service is helping fight stiffer competition and attracting thrifty, inflation-fighting customers.
On Thursday, the company reported an increase of 7.7 million subscribers between October and December, including the debut of an ad-supported variant for $7 a month, less than half the cost of its most popular free plan. The figures followed a subscriber increase that beat analysts’ modest expectations during the July-September period, following a second straight quarter of Netflix customer losses.
With momentum regained, Netflix also announced that its co-founder Reed Hastings will be relinquishing his co-CEO title, completing a transition that began in July 2020 with the appointment of programming chief Ted Sarandos as co-CEO. Greg Peters, chief operating officer of Netflix, will join Sarandos as co-CEO, with Hastings becoming executive chairman.
Hastings, 62, has been CEO of Netflix for more than 20 years after taking over from his friend and co-founder Mark Randolph in the late 1990s.
On his blog, Hastings said that he, Sarandos and Peters “have all learned to bring out the best in each other. I look forward to working with them in this role for many years to come.”
Netflix’s subscriber growth did not lead to an increase in profits, mainly because a strong dollar weighed on international results. The Los Gatos, California-based company earned $55.3 million, or 12 cents a share, in the fourth quarter, down 91% from the same period the previous year. Revenue rose 2% year-over-year to $7.85 billion, a modest gain that suggests some long-term subscribers may have jumped from the more expensive plan to the cheaper ad-supported option.
The profit turned out to be lower than the forecasts of the analysts forming the investors’ expectations. But investors seemed to be more focused on subscriber growth, which far exceeded forecasts. Shares of Netflix rose 6% in extended trading to $335.01. The share price has doubled from a five-year low of $162.71 hit last May, but is still well below its all-time high of $701 in November 2021.
Last year’s decline in subscriber numbers, unprecedented since Netflix split its streaming and DVD-by-mail services in 2011, prompted management to use ads for the first time. The company is now gearing up to crack down on the rampant password exchange that has allowed an estimated 100 million people around the world to watch popular shows like The Crown and Stranger Things for free.
Thanks to a surge in activity over the holiday season, Netflix now boasts nearly 231 million subscribers worldwide — more than any competitor in the increasingly crowded video streaming space that includes the likes of Amazon, Hulu, Google’s YouTube, Walt Disney Co. . and Apple, the richest company in the world.
Now that consumers have so many options and their own income is limited, Netflix has acknowledged that it will be difficult to attract more customers as it used to be. Its growth peaked during the first phase of the pandemic, when the video streaming service gained more than 36 million subscribers in 2020 while most people were locked up at home. By comparison, Netflix amassed less than 9 million subscribers last year.
The slowdown has prompted Netflix to end its longstanding practice of predicting the number of subscribers it expects to get from one quarter to the next in an attempt to reduce investor attention to that number. Instead, Netflix is focusing more on revenue and profit growth, a goal that is expected to be helped by increased ad revenue.