Netflix earnings: Asia growth softens subscriber drop at home; ad option coming 'early 2023'

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Netflix (NASDAQ:NFLX) is up 8% postmarket Tuesday, as of 4:28 p.m., after delivering a softer subscriber loss than it had warned, and projected subscribers would grow again in Q3, though it notes revenue growth is facing challenges overseas from the strong U.S. dollar.

Revenues grew by 9%, but that faced foreign-exchange headwinds, and would have grown 13% in constant currency, Netflix said. Meanwhile, it’s guided for 5% revenue growth in Q3 (but 12% in constant currency).

As reported, it lost 970,000 net subscribers after warning it would lose 2M. Turning to those regional markets, it saw the biggest decline in the mature U.S./Canada home market, where it fell by 1.3M net adds to 73.28M memberships. In EMEA, net declines of 0.77M left it with 72.97M subs there.

Latin America barely eked out growth, to 39.62M subs from 39.61M last quarter. And Asia Pacific mitigated the declines heavily, with paid net adds of 1.08M to land at 34.8M paid subs. Revenue in APAC grew 23% Y/Y, excluding foreign exchange, and that business is approaching the size of its Latin American business, the company said.

As for eagerly anticipated news on its plans for an ad-supported tier, Netflix has given some juice to recent chatter that it might take more time setting up, saying now that it’s partnered with Microsoft, “we’re targeting to launch this tier around the early part of 2023.”

“Our lower priced advertising-supported offering will complement our existing plans, which will remain ad-free,” the company says (emphasis theirs). “Our global ARM has grown at a 5% compound annual rate from 2013 to 2021, so it makes sense now to give consumers a choice for a lower priced option with advertisements, if they desire it.”

It will likely start in a “handful of markets where advertising spend is significant,” and it reiterates early expectations that it will iterate quickly, so “our advertising business in a few years will likely look quite different than what it looks like on day one.”

In another news alongside earnings, Netflix (NFLX) said it will use cash on hand to acquire animation studio Animal Logic, with which it partnered on The Magician’s Elephant and The Shrinking of the Treehorn. “Together, we’ll create an animation studio that will produce some of our largest animated feature films.”