Has Netflix found an “antidote” to fix the decline and break the “curse” of user loss?

Recently, streaming media giant Netflix handed over its financial results report for the latest quarter. Judging from the disclosed results, Netflix “ended” the loss of paid members for the previous two consecutive quarters, achieving a net increase of 2.41 million paid members, far exceeding Wall Street's expectations of 1 million.

Benefiting from this, Netflix's stock price has soared, and there is a feeling of “raising one's eyebrows.” Has Netflix, which is trying to reshape its business model, found an “antidote” to save itself?

Judging from Netflix's 2022 Q3 earnings data, many indicators such as revenue, profit, and number of new subscribers all exceeded market expectations.

After the financial report was released, as of the close of the US stock market on October 18, Netflix fell 1.73% to 240.86 US dollars/share. US stocks rose more than 14% after the market.

First, Netflix achieved a 5.9% year-on-year increase in revenue this quarter, driven by an increase in the number of subscribers.

According to the data, Netflix had 223.9 million global subscribers in the third quarter, and 2.41 million new subscribers were added this quarter. In Q3 2022, Netflix achieved total revenue of $7.926 billion, higher than Wall Street analysts' expectations of $7.84 billion.

In Q3 2022, Netflix's UCAN market achieved revenue of 3.62 billion yuan, an increase of 11% over the previous year, contributing 45.4% of the company's revenue. In the third quarter, there was a net increase of 100,000 subscribers in the UCAN region to 73.39 million;

The EMEA market achieved revenue of US$2,376 billion, a decrease of 2% year over year, contributing 30% to the company's revenue. In the third quarter, the number of subscribers in the EMEA region increased by 570,000 to 73.53 million;

The LATAM market achieved revenue of US$1,024 million, an increase of 12% over the previous year, contributing 12.9% to the company's revenue. In the third quarter, the LATAM region added 310,000 to 39.94 million subscribers;

The APAC market achieved revenue of 889 million US dollars, an increase of 6.6% year over year, contributing 11.2% to the company's revenue. In the third quarter, the number of subscribers in the APAC region increased by 1.43 million to 36.23 million.

Second, it achieved operating profit of US$1,533 billion, net profit of US$1,398 million, and earnings per share of US$3.1, higher than Wall Street's expectations of US$2.12.

In this performance outlook, Netflix expects fourth-quarter revenue of $7.776 billion, up 0.9% year over year, and $0.36 per diluted share. The number of paid streaming subscribers worldwide will grow by 4.5 million. However, it is worth reminding that Netflix said it will not provide expectations and guidance for subscribers starting in the fourth quarter.

As the absolute leader of the media, Netflix is trying to reshape its business model, lay out games and launch advertisements. In order to maintain the growth in the number of subscribers, Netflix will continue to push forward the “Restrict Password Sharing” program.

Is Netflix's performance explosion sustainable this quarter? What kind of challenges will they face in the future?

In fact, Netflix rejected advertisements before, but after overspending the dividends of the pandemic, after the myth surged and disillusioned, Netflix wanted to maintain revenue and profit growth and had to find a new way out. The most direct and fast method is to raise the subscription price, but the price increase is difficult to sustain, and price increases can easily cause loss of users.

As a result, Netflix further adopted a plan to restrict password sharing, which is one way to tap into existing users.

In March and July of this year, Netflix successively launched the “add extra member (add extra member)” function and the “add a home (add a home)” function, which allows subscribers to add “sub-accounts”. This month, in order to encourage users using other people's accounts to create their own accounts, Netflix added a “Profile Transfer (Profile Transfer)” function, which allows users to migrate data from their original account, including personalized recommendations, viewing history, my lists, and other settings, to the new account.

However, how many Netflix subscribers can the “Restrict Password Sharing” program convert? The final implementation results of this plan are yet to be tested. As far as the current domestic long video users are concerned, long video platforms such as iQiyi also have similar restrictions on multi-device account logins. The rate of users who previously used the author's account to watch videos converted to paid members of the long video platform is still relatively low.

In terms of games, Netflix stepped up its efforts in the gaming field this year.

On September 12, Netflix reached a partnership with French game giant Ubisoft (Ubisoft) to launch mobile game versions of “Assassin's Creed”, “Braveheart” and “Mighty Quest” next year. According to Ubisoft's financial report for fiscal year 2022 (as of March 31, 2022), each of these 3 IPs created a net pre-determined value of over US$316 million for the company. It is easy to see that the game's profit margin is huge. It is worth looking forward to how much the game cooperation between the two sides will bring to Netflix.

On September 26, a game development studio was opened in Helsinki, the capital of Finland. According to some sources, Netflix plans to launch 50 games by the end of this year, including “The Queen's Game” and “Stranger Stories: 1984,” which are based on its popular TV series.

Of course, the amount of “revenue” Netflix can make in the gaming field is directly related to the proportion of game users among platform subscribers and whether it can successfully convert video subscribers into game users.

According to data released by Apptopia in August, the total number of downloads of Netflix games is 23.3 million, and the average number of daily users is 1.7 million. Currently, Netflix has 223.9 million subscribers worldwide. Of the huge paid user base, only 1% of users are interested in the game business.

If Netflix uses the gaming business as a new growth engine in the future, there is a long way to go.

In terms of advertising, Netflix's low price package with advertising will be launched in stages in 12 countries from November 1 to 10, including the United States, the United Kingdom, Canada, Germany, and Japan. The price of this advertising package is $6.99 per month.

Currently, the advertising package has not been launched. The degree of acceptance of this new model by platform users remains to be seen, but there are a few points that need to be paid attention to: after the launch of a relatively low price advertising package, will it reverse phagocytosis and cause the loss of subscribers; will previously lost members return?

Jeremi Gorman, president of Netflix's global advertising, said that currently Netflix's advertising space has basically been sold out, and the company has attracted automakers, consumer goods companies, and luxury brands.

The platform wants to attract brand owners, and it is closely related to the data of platform users. Platform user size, usage time, etc. are all directly related to brand owners' marketing effectiveness and conversion rate. As a streaming platform, Netflix attracts and retains new and old users and advertisers, and fundamentally needs to continue to input high-quality content.

Netflix's subscriber growth this quarter is directly related to the highest-rated premium series such as “Stranger Stories 4” and “Monster: Jeff Redmore.” However, judging from the number of new subscribers added in different countries and regions, the North American market is Netflix's largest market. Compared with other global markets, it is more mature and has a higher market penetration rate. However, user growth in this major market has peaked, making it more and more difficult to attract new users, and price increases face the risk of losing users.

Netflix announced an increase in subscription prices in the US market in January of this year. Affected by this, the company's user turnover rate has increased. Analysts at Goldman Sachs (Goldman Sachs) quoted data from the data analysis company Sensor Tower as saying that in the third quarter, Netflix software downloads on the Apple and Android app stores declined year over year, and software downloads showed user subscription trends.

Currently, the Asia-Pacific region is the region with the most new Netflix users, but the region's contribution to Netflix's revenue share is much lower than that, and ARPU in the Asia-Pacific region has declined for four consecutive quarters, which also indicates that the willingness of users in the region to pay is relatively low. The increase in Netflix's ARPU value in the Asia-Pacific region may be achieved through the launch of advertising packages.