Netflix loses nearly 1 million subscribers, but helped by ‘Stranger Things’

The popularity of sci-fi series “Stranger Things” helped Netflix fight back against a stream of subscriber cancellations.

The Los Gatos, Calif.-based streamer said Tuesday that it lost 970,000 subscribers in the quarter, marking the second consecutive quarter of subscriber declines.

Nonetheless, the drop was not nearly as bad as the 2 million cancellations Netflix had forecast.

The results came as a relief for the company as it faces steep competition from rivals including HBO Max and Disney+ and losses in its valuation.

Netflix has responded with rounds of layoffs and by ending its longstanding aversion to running ads on the platform.

Netflix said it is partnering with Microsoft on the launch of a cheaper, ad-supported subscription plan that will attract new customers.

“I actually think that they’re going to succeed,” said Michael Pachter, a managing director at Wedbush Securities, who has an “outperform” rating on the stock.

The company’s revenue was $7.97 billion in the second quarter, up 8.6% from a year ago. Net income was $1.4 billion, up from $1.35 billion a year earlier, close to what Wall Street was expecting.

Analysts anticipated Netflix would have $8.03 billion in revenue and net income of $1.3 billion, according to FactSet.

Netflix benefited from releasing the fourth season of “Stranger Things” in two portions, releasing Part 1 on May 27 and Part 2 on July 1. Fans of the show would need to subscribe to Netflix over a two-month period (across the second and third quarters) to be able to watch the full season at launch.

“Stranger Things 4” is the second-most popular TV series on Netflix, garnering more than 1.3 billion hours of watch time on the platform in the first 28 days, according to the company. In the series, a group of friends battles monsters from the Upside Down dimension.

“Straddling the quarter with their most popular show necessarily kept people from churning,” Pachter said.

Still, growth has slowed considerably. Netflix said it anticipates it will grow subscribers in the third quarter by 1 million, compared with 4.4 million new subscribers in the 2021 third quarter.

Netflix investors had a wake-up call earlier this year when the company for the first time in more than a decade reported a loss of 200,000 subscribers after its customer base had surged during the early part of the pandemic as people were sheltered at home.

The company’s stock price has plunged by more than 60% in the last year, closing at $201.63 on Tuesday.

In recent months, Netflix has been cutting costs, laying off 450 employees as well as contract workers in such areas as marketing and social media. While it is expected to spend roughly $18 billion on content this year and is still rolling out big-budget films like “The Gray Man,” the company is reducing the volume of movie projects it takes on.

Netflix remains the dominant player in the streaming market with nearly 222 million subscribers.

In a way, the company is “a little bit of victim of their own success because they added so many people in a short timeframe,” said Ross Benes, a senior analyst with market research company Insider Intelligence. “It’s hard to keep that momentum going.”

Aside from rising competition, Netflix has been challenged by the problem of customers sharing their passwords with people who do not live in their households.

To address this, Netflix is testing ways for subscribers in certain countries such as Peru and Chile to pay $2 to $3 more to add non-household members to their plans.

On Monday, the streamer announced plans to test a way for customers in Argentina, the Dominican Republic, El Salvador, Guatemala and Honduras to pay more to add additional homes to their subscriptions.

Another issue for Netflix is cost. Its lowest price plan with no ads is about $10 a month in the U.S. Streamers at a lower price level include Apple TV+ at $4.99 a month with no ads and the Roku Channel, which is free with ads.

“The price is too high and it doesn’t have a cheaper tier,” Laura Martin, a senior analyst at Needham & Co., said of Netflix. “It doesn’t have news or sports, which are really great customer acquisition, and it doesn’t have a bundle.”

Netflix is exploring live streaming content, such as comedy specials in the future.