Netflix’s subscriber growth is picking up again, giving the first signs that its shift to include ads in a cheaper version of its video streaming service is helping it fight off tougher competition and attract customers. cheap to fight the cost of living.
The company on Thursday announced a profit for 7.7 million customers during the October-December period, a period that included the launch of an ad-supported option for $ 7 per month – less than half the price of the most popular commercial-free plan. The performance followed subscriber gains that exceeded analysts’ expectations during the July-September period that followed Netflix’s second consecutive subscriber loss.
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After regaining its strength, Netflix also announced that its co-founder Reed Hastings will step down as co-founder, completing a transition that began in July 2020 with the appointment of the head of the program, Ted. Sarandos, as CEO. Greg Peters, Netflix’s chief operating officer, will join Sarandos as co-CEO while Hastings is executive chairman.
Hastings, 62, has been Netflix’s CEO for more than 20 years after taking over from friend and company co-founder Marc Randolph in the late 1990s.
The loss of Hastings as co-CEO “left big shoes for me and Greg to fill,” Sarandos he said during a phone call on Thursday. “Thankfully we have four legs to do it.”
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As he handed over the CEO baton, Hastings said Sarandos and Peters is “ready” to succeed him. “They both have amazing talents and gifts,” Hastings said on the conference call. “In fact, more and more of them were leading the business.”
Insider Intelligence analyst Paul Verna interpreted the new direction as another step in the evolution of Netflix from its roots as a technology company led by mathematicians in Hastings to an entertainment service led by. Sarandoswho had long dealt with the Hollywood studios, and Peters, who oversaw the expansion of advertising.
“The change now is putting advertising in the middle of the image, along with the content,” Verna said.
The increase in Netflix subscribers did not boost profits, mainly because the strong dollar weighed on international products. The Los Gatos, California-based company earned $55.3 million, or 12 cents per share, during the fourth quarter, a 91% decline from a year earlier. Revenue rose 2% from a year earlier to $7.85 billion, a modest gain that suggests some customers may have jumped from higher-priced plans to lower ad-supported options.
Earnings fell below analysts’ forecasts that gauge investor expectations. But investors seemed to be more focused on consumer gains that far beat forecasts. Shares of Netflix rose nearly 7% in extended trading to $337.60. The stock price has more than doubled from a five-year low of $162.71 last May, but remains well below the all-time high of $701 in November 2021.
Last year’s decline in subscribers, unprecedented since Netflix separated its streaming and DVD-by-mail services in 2011, prompted management to take the first step in advertising. The company is now preparing to crack down on password-sharing that has allowed some 100 million people worldwide to watch popular shows like “The Crown” and “Stranger Things” for free.
Buoyed by the holiday season boom, Netflix now has nearly 231 million subscribers worldwide – more than any competitor in the competitive video streaming space that includes the likes of Amazon, HuluYouTube by Google, Walt Disney Co. and Apple, the richest company in the world.
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Now that consumers have more options with more disposable income, Netflix has recognized that it will be difficult to attract more customers as it has historically done. Its growth peaked during the first phase of the pandemic when the video streaming service added more than 36 million subscribers during 2020, while most people were confined to their homes. By comparison, Netflix gained less than 9 million subscribers last year.
The recession prompted Netflix to end its long-standing practice of estimating the number of subscribers it expects to gain from the next quarter, an effort to reduce investor focus on that number. Instead, Netflix places more emphasis on increasing revenue and profitability, a goal that is expected to be helped by revenue from ad sales.