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Netflix falls as benefits from password sharing crackdown to take time

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By Samrhitha A

(Reuters) -Shares of Netflix tumbled more than 8% on Thursday after the video-streaming pioneer’s lackluster revenue rise sparked concerns of a longer road to growth from its new initiatives.

The company added nearly 6 million subscribers in the second quarter – almost three times above Wall Street’s expectations – thanks to a crackdown on password sharing and the introduction of a cheaper subscription tier that is bundled with advertising.

However, quarterly revenue growth and forecast lagged estimates, prompting co-Chief Executive Officer Greg Peters to caution that it would take “several quarters” to see returns from those efforts.

Netflix shares recorded their second-worst day this year, losing nearly $18 billion in value, on Thursday. So far in 2023, the stock has gained about 48%.

“Netflix needs to squeeze as much juice as it can from different avenues,” Hargreaves Lansdown analyst Sophie Lund-Yates said, adding the market was “realms away from knowing” if the much-touted ad tier could become the new cash cow.

The company has been fighting off rivals Disney+ and Amazon’s Prime Video in an industry that is showing signs of saturation in the United States. Many of the company’s new sign-ups are in countries where it charges lower prices.

“Some folks are using the result as an excuse to take some profits,” Pivotal Research Group analyst Jeffrey Wlodarczak said.

Analysts remained broadly upbeat on the stock though, with at least 26 of them lifting their price targets on hopes that revenue growth would accelerate in the second half of 2023 thanks to the new money-making initiatives.

They also said the ongoing strike in Hollywood might not hit Netflix’s content slate until 2024 and that it could give the company an edge over its peers as it has a solid lineup of shows.

The company also has a big international presence, giving it access to a wide range of non-U.S. shows and shielding it from the strike. Its non-English titles such as “Physical 100”, “The Glory” and “Alice in Borderland” have also been gaining in popularity.

“Every other streamer is now increasing prices, while Netflix is now extremely competitive with its ad tier. It is putting all the building blocks in place for future revenue growth,” PP Foresight analyst Paolo Pescatore said.

He added the company would also benefit from its move to remove the cheapest plan without ads tier in core markets, which should help support declining average revenue per user.

Netflix on Wednesday raised its 2023 free-cash-flow forecast to at least $5 billion from an earlier estimate of about $3.5 billion as a result of the strike.

(Reporting by Samrhitha Arunasalam in Bengaluru; Additional reporting by Yuvraj Malik; Editing by Nivedita Bhattacharjee, Anil D’Silva and Shounak Dasgupta)

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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside

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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.

The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.

The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.

Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.

The Canadian Press. All rights reserved.

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