Netflix loses fewer subscribers than expected and says cheaper ad tier is coming in early 2023

Netflix shares jumped after the company said it lost fewer subscribers than anticipated during the second quarter.

The streamer also said it aimed to unveil its lower-cost, ad-supported tier in early 2023. This comes on the heels of Netflix tapping Microsoft to be its partner on the ad-supported offering.

“We’ll likely start in a handful of markets where advertising spend is significant,” the company said in its shareholder letter. “Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one.”

Netflix had warned investors last quarter that it expected to shed around 2 million subscribers, but only lost around 970,000 during the three month period ending June 30.

Here are the results:

• EPS: $3.20 vs $2.94 per share, according to Refinitiv.
• Revenue: $7.97 billion, vs. $8.035 billion, according to Refinitiv survey.
• Global paid net subscribers: A loss of 970,000 subscribers vs. expectations of a loss of 2 million, according to StreetAccount estimates.

The company, which currently has 220.67 million subscribers, said it expects net adds to reach 1 million in the third quarter, reversing some losses seen during the first half of the year. Analysts had predicted Netflix would guide for growth of around 1.8 million.

Netflix also noted that it is in the early stages of its paid sharing plan. This is an effort it mentioned last quarter that would upcharge some members for sharing their subscription with family members or friends that live outside their home. The company said it is looking at two different approaches in test cases in Latin American that can inform a wider rollout in 2023.

The company warned of the strengthening U.S. dollar’s impact on its international revenue, which makes up 60% of its top line. The dollar’s surge comes as the Federal Reserve hikes interest rates to fight four-decade-high inflation in the United States.

Last quarter, Netflix addressed its slowing revenue growth, which it said was the result of competition, account sharing and other factors such as sluggish economic growth and the war in Ukraine.

“We’ve now had more time to understand these issues, as well as how best to address them,” the company said.

It remains focused on content, offering big-budget films on its service rather than in theaters, and providing all episodes of new shows all at once for subscribers to binge. The company touted “Stranger Things” season four as a big win for the brand. Not only did it top viewership records for the company, but it was also nominated for several 2022 Emmys.

Netflix’s shares, which traded around $700 last year, closed Tuesday at just above $200.