Netflix ‘Trying to Pinpoint’ What's Slowing Sub Acquisition Growth: CFO

Netflix finished Q4 with 8.28 million global paid net additions, nearly 3% short of its Oct. 19 projections (see 2201200069). Subscriber acquisition “just hasn't fully recovered” to pre-pandemic levels, “and we're trying to pinpoint what that is,” said Neumann. “It's probably a bit of just overall COVID overhang that's still happening after two years of a global pandemic,” causing some “macroeconomic strain in some parts of the world, like Latin America, in particular,” he said.

Two years ago, “we were 10 million above plan, which was a shock,” after the pandemic's stay-at-home lockdowns caused a surge in Netflix paid net adds, said co-CEO Reed Hastings. “Last year, we were 10 million below” plan, so the “pull-forward” demand from COVID-19 makes current trends “hard to read,” he said. Hastings is satisfied “our execution is steady and getting better, so for now, we're just like staying calm and trying to figure out” the trends, he said. “COVID has introduced so much noise.”

The price hike that Netflix announced Jan. 14 for all tiers (see 2201140056) will start “flowing through” to customers in the current quarter, said Chief Operating Officer Greg Peters. It’s “premature” to talk about the impact of the price increase “because we haven't actually rolled it out to any customers yet,” he said. Netflix is forecasting a 37% year-over-year decline in net paid adds to 2.5 million for Q1.

Netflix members historically have been satisfied that “we’ve done a good job investing” in “better stories, more great storytelling, bigger movies, more variety,” said Peters. “When we come back and ask them occasionally for a little bit more to keep that sort of cycle going, then they're generally willing to do that, and we don't see any significant disruption to the business.”

The “ability” of Disney+ and other streaming competitors “to grow even as we've been growing as well” is a “really strong endorsement for the core idea that consumers around the world are willing to pay for great entertainment,” said Peters. “It encourages us to continue that investment and to try and deliver more entertainment value and earn more of that share.” The “metrics that we see” in customer engagement and churn “are really our signal that we've done a good job” at creating “more value” for the buck, and that “it's the right time to ask for a little bit more” in monthly subscription fees “to keep that going,” he said.

Netflix spent years “building the plumbing and all the technical infrastructure” to be able to “consistently launch games globally to all of our members,” said Peters. “We're now really getting to learn from all those games, what are the discovery patterns? What are the engagement patterns? How are they performing? What do our members want from games on the service?”

Though it's the “very early days” of the Netflix foray into games, “we're generally seeing good growth” in the number of monthly and daily “active users,” said Peters. “We've been building in parallel” an “internal development capacity, our own game studio,” he said. Attaining a strong internal studio “is really when you're going to see a next level of unlock around the value we can deliver to members,” he said.

Netflix is “very open” about the strategies it will deploy to build a strong games arsenal, said Peters. “We're going to be experimental and try a bunch of things.” The “long-term prize” centers “around our ability to create properties that are connected to the universes, the characters, the stories that we're building in other places, and sort of magnify that value for the fans of those stories,” he said. Netflix is also open “to licensing, accessing, large game IP that people will recognize, and I think you'll see some of that happen over the year to come,” he said.