Netflix Earnings Test Whether Strong Slate, New Ad Plan Can Deliver Customer Growth

The earnings report caps a tumultuous year for Netflix. It surprised Wall Street in early 2022 with two back-to-back quarters of customer losses before rebounding in the September quarter with 2.4 million new customers. 

The company spent much of the year focused on starting an advertising-supported tier, controlling costs and finding ways to make money from the more than 100 million Netflix viewers who watch content using someone else’s account.

Wells Fargo analysts wrote in a note Wednesday that they expected password-sharing to be a bigger catalyst for Netflix than advertising in the near term. If Netflix begins implementing its plan toward the end of the first quarter, customer defections will likely rise in the second quarter, followed by higher average revenue per user after that, they wrote.

The streaming market has gotten more competitive in recent years. Customers have seemingly endless options and are willing to flit between services when they are done watching a specific show. Investors also are increasingly focused on profitability, which puts added pressure on Netflix and its rivals to increase not just their subscriber bases, but also the amount of revenue they make per customer.

Netflix has said it would no longer provide quarterly guidance on the number of subscribers it attracts, as it has in the past. The company said it was making that change as a result of an increasing focus on revenue as the best metric of its health. With the ad-supported tier and paid-sharing initiatives, memberships are only one component of Netflix’s revenue, it said.

Netflix’s rate of customer defections, or churn, remained the lowest among premium streaming-video-on-demand services at 3.1% in December, though that is higher than the 1.9% churn rate Netflix had in December 2021, according to subscription service data provider Antenna. Netflix’s average cancellations were 1.3 million a month in the final quarter of 2022, compared with an average of 814,000 a month in 2021, Antenna data shows.

Netflix in early November launched a $6.99-a-month ad-supported plan, which by some measures got off to a slow start. It was Netflix’s least popular plan in its first month on the market, according to Antenna data. 

In December—its second month on the market—the plan accounted for 15.5% of all sign-ups in the U.S., up from 9.3% in November, according to Antenna. Overall, the ad-supported plan accounted for less than 1% of total U.S. Netflix subscribers in December, Antenna found. Netflix said in October that it didn’t expect the ad tier to be a meaningful revenue contributor during the final quarter of 2022.

The new ad-supported plan did, however, overtake Netflix’s $9.99 basic plan in terms of popularity late last month, according to data provider YipitData. Around that time, the $9.99 basic plan was no longer listed among the three main plans displayed to some people looking to sign up. To see the $9.99 basic option, those users had to click to another webpage. 

Netflix finished the year with popular programming that spanned genres, from Ryan Murphy’s “The Watcher” to the highly anticipated “Glass Onion: A Knives Out Mystery.” 

“Wednesday,” the series based on the Addams Family, ranks third among TV shows on Netflix for the most hours viewed during its first 28 days on the platform after “Squid Game” and the fourth season of “Stranger Things.” And the first half of “Harry & Meghan,” Prince Harry and

Meghan Markle

‘s broadside at the British royal family, was watched more globally than any other Netflix documentary in its premiere week.

Write to Sarah Krouse at [email protected]