Netflix shouldn’t take a victory lap just yet

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Netflix Inc. has shown an amazing ability in the past to bounce back from an unexpectedly poor performance in one quarter with a better-than-expected result the next time around. And so it was on Tuesday: After alarming the market with its April estimate of a second-quarter drop of 2 million subscribers, the video streaming giant reported a much smaller loss of 970,000 subscribers. .

Investors celebrated, sending shares of Netflix soaring as high as $225 in after-hours trading after rising 5.6% in the regular session to hit $201.63. After Netflix’s stock hammering in recent months, it was almost as if all was forgiven.

Well, wait a second. If you look at Netflix’s subscriber numbers regionally, things don’t look so healthy. The only area where Netflix has shown real growth is Asia-Pacific, where it’s less of a presence than elsewhere. In its two largest regions, North America and Europe, the Middle East and Africa, Netflix subscriber losses have increased significantly.

In North America, for example, Netflix lost 1.3 million subscribers, roughly double the loss in the first quarter. Same as EMEA.

It’s never good to shrink into your biggest and richest markets. But the North American losses in particular reinforce the idea that Netflix blundered by raising prices as competition from Walt Disney Co., Apple Inc. and Warner Bros. Discovery Inc. was growing. This idea was imposed after the results of the first quarter. Netflix disagrees: Its executives have challenged the idea that price hikes have caused a sustained rise in churn, even though taking them seriously before was hard and harder now. (They doubled down on that view on Tuesday, saying in their quarterly letter to shareholders that “retention improved in the quarter” and churn was “now close to pre-price change levels.” even if it “remains slightly high”.)

To be sure, Netflix executives can also point to the financial benefit of the price increases: Average subscription revenue in North America rose 7% in Q2 from Q1 to $15.95, meaning revenues in the region have increased slightly compared to the first. quarter despite a reduced subscriber base.

But increasing revenue from a dwindling number of customers is not a recipe for long-term growth. This is actually the way the cable TV industry has operated for quite some time, which is hardly an industry that Netflix wants to emulate. Netflix forecast a return to overall growth in the third quarter. Whether it can stem losses in its biggest markets is a more fundamental question.

More other writers at Bloomberg Opinion:

• Netflix, inflation and the impact of reality: John Authers

• Netflix cannot rely on price increases alone: ​​David Wainer

• Netflix’s brightest future lies in apps, not ads: Trung Phan

(Clarifies the fifth paragraph to say that the price increases have not resulted in a sustained increase in churn.)

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Martin Peers is a Bloomberg Opinion columnist covering technology and media. Previously, he was associate editor of the Wall Street Journal’s Heard on the Street column and news editor.

More stories like this are available at bloomberg.com/opinion

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