At the end of the fiscal year 2022, Netflix presented a growth record that surprised the market, but one reality Netflix must face is that the growth space for paid subscribers is shrinking.
In the third quarter, Netflix saw unexpected user growth. Paid subscribers grew by 2.41 million, far exceeding market expectations of 1 million. In the fourth quarter, Netflix’s paid subscribers grew by 7.66 million, far exceeding market expectations of 4.5 million. In addition, key indicators such as profit margins and profitability also exceeded expectations. Shares rose by around 10 percent in the days following the announcement of the results.
The growth rate of paying members has always been an important indicator for the capital market to measure Netflix. In the first two quarters of 2022, Netflix lost 200,000 and 970,000 paying users worldwide, comparatively, which was the first time Netflix had negative paying user growth since it launched its streaming business in 2007.
Netflix has cited many reasons for this: the slowing growth of smart TVs, the sharing of accounts among users, the intensification of competition in the streaming media market, inflation and the exit from the Russian market, etc… But these reasons are completely incapable of keeping the capital market from panicking. Netflix has fallen to $162 after the release of its quarterly report at the end of April, and its market value has decreased by more than $200 billion compared to its peak.
Faced with a disappointing performance and a falling stock price, Netflix began tightening its belt to cut costs. This included laying off employees and renting office space, adjusting its content strategy, focusing resources on shooting bigger and better film and television projects, and slowing the release pace of film and television series.
To help Netflix out of the economic downturn, high-quality content is at the heart of Netflix’s business growth. In 2021, “Squid Game” became popular and won the rating champion in 66 countries (regions), which also drove Netflix’s stock price to a record high. Netflix internally estimated that “Squid Game” brought in more than 40 times the profit, cost $21.4 million, and brought in nearly $900 million in revenue. After July 2022, Netflix launched the fourth season of “Stranger Things,” “Wednesday” and the Korean drama “The Glory” in succession, driving the growth of paying users in the second half of the year.
As the growth of North American users has almost peaked, Asia-Pacific is becoming a new region for Netflix to break through the growth bottleneck. In 2022, Asia-Pacific will be the main driver of Netflix’s global subscriber growth. It added 1.43 million new subscribers in the third quarter and 1.8 million in the fourth quarter. The same is true of market expectations for the first quarter of 2023, with Asia-Pacific accounting for nearly 40% of the estimated 3.5 million new paying subscribers. This is the result of increased investment in content in Japan, South Korea, and Taiwan over the last two years.
Netflix also recognized that growth opportunities for paying subscribers will be slim for the foreseeable future. As a result, the company has expanded various types of content, entered gaming, fitness, live broadcasting, and other areas since 2022, and introduced a low-cost subscription package in the first quarter that includes 4 to 5 minutes of advertising per hour.