Opinion

Netflix’s recent performance is much better than some would have you believe

Zuora subscription strategist Nick Cherrier looks at the untold story behind the streaming giant's subscriber numbers.

Netflix recently conducted a Q2 2021 earnings interview, and it’s triggered some negative sentiment from commentators. That negativity revolves mainly around what is perceived to be underwhelming growth in subscriber numbers. The company announced 1.54 million new users for the period and analysts had predicted growth of 1.75 million over the quarter.

I say “perceived” because I don’t think these numbers are surprising. I don’t even think they’re bad news.

While it’s true that net acquisition in North America went negative (the company lost 433,000 subscribers during the quarter), this is not a first; Netflix posted a drop in Q2 2019 as the streaming market was starting to show signs of maturity. In that case the numbers picked up again in Q3 and Q4.

It’s also important to keep in mind that at the start of the COVID-19 crisis in 2020, Netflix added 5.4 million new subscribers during the first two quarters. Their execs had expected subscriber growth and felt that lockdown simply brought it forward – it came early and all at the one moment. In that context, the softening in numbers we’re seeing now is not surprising or even concerning – in fact it was probably inevitable at some point.

But some commentators have suggested that what’s really hurting Netflix is not the vagaries of the global pandemic, but increased competition in the field of streaming. Disney+ has been raised more than once.

Netflix certainly considers Disney to be a worthy competitor, but their leaders don’t believe that the content behemoth (or any new streaming entrants for that matter) have much to do with the mini slump. Indeed, Netflix argues that the content — the material they have always competed against — is essentially the same; what’s changed is the vehicle through which you can consume it.

As Wilmot Reed Hastings, co-founder, chairman and president of Netflix puts it: “There is plenty of room to grow without taking away from the other streamers.” As with any subscription company or content generator, whether it be Disney+, Instagram, TikTok or the Olympics, what matters is providing a service that viewers and subscribers consider valuable and worthy of their continued time and attention.

It’s also worth noting that although some headline figures looked a touch flat on paper, there were several unquestionable positives among the results. Revenue is up 22% on H1 last year. Price is up. Profit is up 64% with an operating income over 26% of revenue.

Not only is Netflix still growing, it is displaying its pricing power by increasing average revenue per user across all regions (EMEA +11%, North America +10%, APAC +9%, LATAM +1%).

Most importantly, churn is down. A recent study from Subscribed Institute showed that subscription businesses acquired between 70% and 80% of their revenue through existing customers. For a business like Netflix which has moved well beyond launch and optimisation and is now in a maturity phase, retention takes priority over acquisition, and that means churn numbers are even more critical.

But when I talk about maturity, I don’t mean that Netflix has exhausted its potential and is now in some kind of holding pattern. Hastings’ comments make that clear.


Content is still king, according to Theodore Sarandos, co-CEO and chief content officer at Netflix. All the highest quality shows are now sourced through online streaming services, something that would have seemed far-fetched less than a decade ago. And this momentous technological moment has brought with it considerable new opportunities.

Sarandos believes Netflix is only currently tapping into a “fraction” of its potential audience. Yes, they’ve got every conceivable genre of film and TV covered, but they’re thinking beyond that.

The company advised investors just last week that it is in the “early stages of further expanding into games.” But it’s not an experiment or expansion of a trial. During its earnings call, the company’s chief operating officer, Greg Peters, described it as “a core part of our subscription offering.”

They’ll likely begin with mobile-based games, and some will be linked to existing Netflix content. The company is convinced it is well-placed to succeed in this new venture, which will focus on providing engaging gaming experiences, un-interrupted by ads or in-game purchases, relying instead on a tried and tested model: subscription.

And as Microsoft has shown with Game Pass, the sky’s the limit when you bring video games into the subscription economy.

While a couple of headline numbers from Netflix’s earnings announcement may at first blush have seemed unimpressive, deeper analysis shows there is much more reason for optimism than pessimism.

Context and history are important when examining any financial situation. But in the case of Netflix it might be the future – what the company has planned for expansion of its business – that gives us the best indication of its health.

Nick Cherrier is the subscription strategist at Zuora.

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