Netflix Just Lost Tons More Subscribers

Netflix shared its second quarter 2022 earnings Tuesday, confirming it lost even more subscribers despite releasing new episodes of Stranger Things. The streamer lost another 970,000 subscribers, although that was far less than the 2 million subscribers Netflix was expecting to lose. Netflix shocked Hollywood when its first quarter earnings showed a loss of 200,000 subscribers, leading to questions about the platform's future and several high-profile cost-cutting measures.

The streamer's quarterly earnings report to shareholders said it currently has 220.67 million subscribers around the world and is expecting to report a gain for the third quarter, reports Variety. Netflix expects to add 1 million subscribers from July 1 to September 30, 2022. The company also lost 700,000 subscribers during the first quarter in Russia after Netflix pulled its service there because of the invasion of Ukraine.

During the second quarter, which covered April 1 to June 30 for Netflix, the streamer lost 1.3 million subscribers in the U.S. and Canada, lost about 770,000 in Europe and West Asia, and stayed flat in Latin America. About 1 million new subscribers signed up in the Asia Pacific region though. In terms of finances, Netflix reported revenue up 8.6% over the second quarter of 2021. Its operating income for the second quarter was $1.6 billion and its net income was $1.4 billion.

After the first quarter report showed the loss in subscribers, Netflix began slashing jobs and canceling projects, many of which hadn't even aired yet. So, the company reported a $70 million hit in severance costs and said it was tweaking its operating model "for slower top-line growth," reports Variety. Netflix also had an $80 million non-cash impairment charge for "certain real estate leases primarily related to rightsizing our office footprint."

Netflix told shareholders they made strides in solving one of its biggest problems, password-sharing, by launching paid tiers in some markets for households that share passwords. Netflix also began working with Mircosoft on developing a new ad-supported tier they hope to launch in early 2023.

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The streamer also made it clear that it is not deviating from its plan to have more and more original content so they don't have to worry about rights issues with distributors owned by their rivals. In other words, Netflix doesn't want another situation where a show like The Office or Seinfeld overshadows its own content before they leave. Netflix wants subscribers to stay for Stranger Things, not sign up for Seinfeld and then leave when Seinfeld does.

"We're now more than a decade into transforming our service from licensed second run content to mostly Netflix originals – including more than five years into building out our internal studio to produce the majority of our original titles (60% of our net content assets on our balance sheet are Netflix-produced)," Netflix said in its letter to shareholders. "We're now through the most cash-intensive part of that transition. As a result, our cash content spend-to-content amortization expense ratio peaked at 1.6x (along with peak negative FCF of -$3.3B in 2019) and is expected to be about 1.2-1.3x in 2022 and to decline going forward, based on our current plans, which assume no material expansion into new content categories in '23."