• Netflix exceeds its targets for Q3, but they were low to begin with.
• The platform expects to add 4.5 million new subscribers in Q4 2022.
• Netflix doesn’t expect its Basic with Adverts tier to bring in a massive influx of new users.

Netflix appears to be righting the ship according to its financial results for the third quarter of the year.

First let’s look at the good news. For the first quarter this year Netflix has reported subscriber growth. In Q3 the streaming platform said it welcomed 2.41 million new subscribers. The region that saw the largest influx of new subscribers was Asia-Pacific which saw 1.4 million new members joining Netflix.

Looking at revenue for the quarter, however, things aren’t as great. While Netflix did exceed its targets for Q3, it didn’t soar above its Q2 results. Revenue for Q3 amounted to $7.926 billion versus $7.970 billion in Q2. Netflix is forecasting even lower revenue for the final quarter of this year.

That having been said, Netflix is somewhat bullish about adding new subscribers. Its forecast for next quarter suggests it will add as many as 4.5 million new subscribers to the platform.

“Our paid net adds forecast assumes that we experience our usual seasonality as well as the impact of a strong content slate, counterbalanced by macroeconomic weakness which leads to less-than-normal visibility. While we’re very optimistic about our new advertising business, we don’t expect a material contribution in Q4’22 as we’re launching our Basic with Ads plan intra-quarter and anticipate growing our membership in that plan gradually over time,” Netflix told investors.

This addition of an advert supported tier is also shifting how Netflix reports its results. Starting in January 2023 with its Q4 report for 2022, Netflix will no longer be forecasting paid membership numbers.

This is because the firm is shifting to make revenue its primary top line metric. This move makes sense as given that Netflix will no longer be reliant solely on subscribers, that metric alone is sort of pointless.

While it’s easy to drag Netflix, believe us we know, it’s worth mentioning that the firm has been in the streaming game since 2007. That amount of time is bound to teach you something and it appears as if Netflix is preparing to teach its competitors a lesson or two.

“As it’s become clear that streaming is the future of entertainment, our competitors – including media companies and tech players – are investing billions of dollars to scale their new services. But it’s hard to build a large and profitable streaming business – our best estimate is that all of these competitors are losing money on streaming, with aggregate annual direct operating losses this year alone that could be well in excess of $10 billion, compared with our +$5-$6 billion of annual operating profit. For incumbent entertainment companies, this high level of investment is understandable given the accelerating decline of linear TV, which currently generates the bulk of their profit,” the platform wrote.

“Ultimately though, we believe some of our competitors will seek to build sustainable, profitable businesses in streaming – either on their own or through continued industry consolidation. While it’s early days, we’re starting to see this increased profit focus – with some raising prices for their streaming services, some reigning in content spending, and some retrenching around traditional operating models which may dilute their direct-to-consumer offering. Amidst this formidable, diverse set of competitors, we believe our focus as a pure-play streaming business is an advantage. Our aim remains to be the first choice in entertainment, and to continue to build an amazingly successful and profitable business,” the firm concluded.

Let’s see how Netflix performs next quarter before we declare it to be on the mend.