Netflix Adds Most Subscribers Since 2020 Surge But Investors Fret Over ‘competitive Battle Brewing In Hollywood Labor Strife

Netflix is ​​seeing the biggest growth in subscribers since the pandemic started three years ago, the latest sign that its launch of a low-cost video streaming and password-sharing service is paying off.

The streaming video service added 5.9 million subscribers in the April-June period, according to data released Wednesday and its latest quarterly financial results. The earnings easily surpass the nearly 2.2 million additional subscribers estimated by analysts at FactSet Research. Netflix ended June with 238.4 million subscribers worldwide.

Investors were confused by management's comments in a letter to shareholders warning of an ongoing strike by the Screenwriters and Actors Guild, which shut down much of Hollywood's streaming and entertainment services. Shares of Netflix fell 4% in extended trading Wednesday. As the stock has gained more than 50% this year, the decline may reflect some investors locking in accumulated profits.

The second-quarter performance marked Netflix's biggest spring, typically the company's slowest growth, after gaining 10 million subscribers in various market conditions during the same period in 2020.

In the year 2020, people are still finding ways to stay home and have fun, and governments around the world are trying to find ways to curb the spread of the pandemic. Now Netflix is ​​trying to bounce back from a slowdown in the face of competition from video streaming and inflation that has caused many households to tighten spending, especially on consumer goods like entertainment.

As a countermeasure, Netflix introduced a cheaper ad-free option last year and then started limiting password sharing, allowing 100 million people around the world to watch its series and movies for free. Subscribers on a standard or premium plan now need to sign up for downloadable viewers unless they agree to pay an extra $8 a month to allow more people in different households to watch.

In a letter to shareholders, management said the crackdown on password sharing "has led to healthy conversions of indebted households to paid Netflix subscriptions."

And Netflix isn't done yet. As part of its earnings call on Wednesday, Netflix announced it is abandoning its cheapest ad-free plan in the US: the $10 service. Existing customers who have already paid for this basic plan will be able to keep it. The move is intended to get more people to switch to the $7-per-month plan, including ads, to boost ad revenue, or sign up for the $15.50-per-month Standard Plan or the $20-per-month Premium Plan.

"As we continue to grow this year, we still have a lot of work to do to accelerate our growth," Netflix's management said in a letter to shareholders.

The price changes helped Netflix's second-quarter revenue climb 3% year over year to $8.2 billion, missing analyst estimates. Netflix earned $1.49 billion in the period, up from $1.44 billion last year. Earnings per share were $3.29, beating the average analyst estimate of $2.85, according to FactSet.

Netflix is ​​not investigating the potential impact of the current strike of US writers and actors. The controversy centers around the payment systems used in video streaming and the development of artificial intelligence technology, which threatens to use and eventually replace human labor.

Unlike traditional movie and TV studios in the US, Netflix can continue to supply its entertainment channel with shows it can use to attract and retain subscribers.

Shares of Netflix rose in premarket trading after beating third-quarter earnings.