Netflix subscribers up after shift to include ads in cheaper streaming version

Netflix’s subscriber growth is surging again, providing an early sign that its shift to include ads in a cheaper version of its video streaming service is helping to combat tougher competition and attract cost-conscious customers grappling with inflation.

The company on Thursday disclosed a gain of 7.7 million subscribers during the October-December period, a stretch that included the debut of an ad-supported option for seven dollars (£5.65) per month – less than half the price of its most popular commercial-free plan.

The performance followed subscriber gains that topped analysts’ modest expectations during a July-September period that followed Netflix’s second consecutive quarter of customer losses.

Having regained its momentum, Netflix also announced its co-founder Reed Hastings will relinquish the title of co-CEO, completing a transition that began in July 2020 with the appointment of its programming chief, Ted Sarandos, as co-CEO.

Greg Peters, Netflix’s chief operating officer, will join Mr Sarandos as co-CEO while Mr Hastings becomes executive chairman.

Mr Hastings, 62, had been Netflix’s CEO for more than 20 years after taking over the role from its friend and fellow company co-founder Marc Randolph in the late 1990s.

In a blog post, Mr Hastings said he, Mr Sarandos and Mr Peters have “all learned how to bring out the best in each other. I look forward to working with them in this role for many years to come”.

The upturn in Netflix’s subscribers did not boost profits, largely because the strong dollar weighed on international results.

The Los Gatos, California, company earned 55.3 million dollars (£44.6 million), or 12 cents per share, during the fourth quarter, a 91% decline from the same time in the prior year. Revenue rose 2% from the previous year to 7.85 billion dollars (£6.34 billion), a modest gain that suggests some ongoing subscribers may have hopscotched from a more expensive plan to the lower priced ad-backed option.

The earnings fell below the predictions of analysts who shape investors’ expectations. But investors appeared to be more focused on the subscribers gains that were far above projections.

Netflix’s shares climbed 6% in extended trading to 335.01 dollars (£270). The stock price has doubled from a five-year low of 162.71 dollars (£131.32) reached last May, but is still far below its all-time high of nearly 701 dollars (£566) in November 2021.