Key Takeaway from Netflix Earnings: Ad-Supported Plan Proves Popular

Netflix is a streaming service that provides a wide variety of television shows and movies to subscribers. It offers a range of content from original programming such as "Stranger Things" and "The Crown" to licensed shows and movies from other networks and studios. In addition to its vast library of on-demand content, the platform also offers live shows, documentaries, and stand-up comedy specials.

One of the advantages of Netflix is its user-friendly interface, which makes it easy to discover new content and pick up where you left off on a show or movie. The platform also offers a range of subscription options, including the ability to download content for offline viewing.

Recently, Netflix has been expanding its offerings to include more international content, and has also been adding an ad-supported tier which gives non-subscribers access to a limited selection of content without a subscription. This new ad-supported tier is proving to be a hit among users.

Overall, Netflix's combination of a wide range of content, easy-to-use interface, and flexible subscription options make it a popular choice among streaming users.

Netflix could be kicking itself for taking so long to provide an ad-supported tier. The new service is a hit based on its fourth quarter results.

In its fourth quarter earnings report released on Thursday, Netflix (NFLX +8.5%) stated it had increased its member base by 7.7 million, more than double its increase from the third quarter and far above the streaming service's forecast. It now has 230.8 million members in total around the globe.

The streamer attributed a portion of the increased growth to the company's decision to introduce a lower-cost, ad-supported tier in November, a move that Co-CEO Reed Hastings had long opposed.

It's easy to infer anything from this, but Hastings said he was stepping down as CEO of the business he co-founded and becoming executive chairman at the same time Netflix disclosed its financial results. There will undoubtedly be much discussion about why (Hastings said in a blog post announcing his departure that it had been planned for some time), and one theory is that his apparent misguided apathy in advertising.

But let's get back to the numbers: Prior to the earnings call, Netflix stated that it did not anticipate the ad-supported tier having a material impact on the fourth quarter. This was probably done to allay expectations. It predicted a rise in subscribers of 4.5 million. Although Netflix refuses to disclose the precise number of new customers who joined the ad-supported tier, it is clear that it did contribute to growth.

However, research published today by Ampere Analysis claims that during the first few days the ad-supported tier was accessible, daily subscriber signups increased by more than 50%. From November 3–5, Netflix saw its highest pace of new subscribers since the epidemic began in April 2020. According to the research, the ad-supported tier currently accounts for close to 10% of all new user signups.

The larger numbers appeared just when the streamer needed a boost.

Prior to somewhat improving in the third quarter of last year, Netflix lost members in the first and second quarters. Everyone had an explanation for the declines, the first in ten years for the long-standing streaming leader, which, depending on how the numbers are tallied, has lost subscribers to Disney's Disney+ streaming service. However, Disney includes ESPN+ and Hulu in those subscribers, making the claim ambiguous.

Some have attributed the fall in subscribers to Netflix's significant price rise. Others cited COVID's overstated gains that were never going to hold once the lockdowns were released. The streamer asserted that password sharing was reducing member numbers, and it promised to take action in 2023.

Regarding Netflix's other figures, revenue was $7.85 billion compared to forecasts of $8.1 billion, which was a slight underperformance. It increased 1.9% from the prior year, which was the weakest rise since 2002. The company's earnings per share were also far lower than expected. Although Netflix stated in its third quarter earnings report that it will prioritize revenue over subscribers moving forward, you could expect the firm to retract those statements in light of today's results.