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Netflix’s subscriber growth slows, but company isn’t worried about running out of content

Netflix’s business soared during the pandemic, but as it heads into 2021 and faces a potential shortage of films and movies, the company will have to prove it can continue performing.

Netflix reported its third quarter earnings today, and although Netflix is acknowledging slower growth, the company is still adding subscribers. The company added 2.2 million net subscribers in Q3, compared with the company’s 2.5m guidance. The company saw $6.44 billion in revenue, beating expectations. Still, the looming question for co-CEOs Reed Hastings and Ted Sarandos is how they plan to ensure Netflix won’t run out of things to watch.

The biggest advantage Netflix had over its competitors until now was a constant stream of new shows and films. That’s because by the time the pandemic hit, content for Netflix’s 2020 year was largely shot and in post-production, able to be finished remotely. Now, Netflix is about to be in the same boat as its competitors. Hastings and Sarandos have spoken about how difficult getting back into production has been, especially in the United States.

If subscriber growth continues, Netflix can take that additional revenue and expand its content budget even more. Pivotal Research Group’s Jeff Wlodarczak noted that the more Netflix can reinvest in original programming, the more it “increases the potential target market for their service and reduces existing subscriber churn,” according to The Hollywood Reporter.

During the pandemic, Netflix has had a natural advantage as an at-home entertainment option, but the company has also benefited from the binge-it-all-at-once release model it trailblazed. Netflix typically wraps its projects earlier than traditional TV studios do, since it needs to drop all episodes of a season at once, meaning it already had more of its gigantic production slate in the can before film and TV production largely shut down globally. As a result, Netflix still plans a steady cadence of new programming through 2020 and into next year.

Netflix said Tuesday that it expects to be releasing more titles every quarter of 2021 compared with the year-earlier period. It said it’s restarted production on some of its biggest titles, including season 4 of Stranger Things, action film Red Notice starring Dwayne Johnson, Gal Gadot and Ryan Reynolds, and the second season of The Witcher.

Looking ahead to the fourth quarter, Netflix expects to add 6 million streaming members overall. Analysts’ consensus estimate was for Netflix to predict 6.5 million. Netflix also predicted $1.35 per share in earnings in the fourth quarter. On average, Wall Street analysts who track Netflix expected 96 cents.

In the latest period, in the US and Canada, its biggest single region, Netflix added 61,000 streaming customers, for a total of 67.11 million. In Europe, Middle East and Africa, the service increased members by 3.13 million, to 47.36. In Latin America, it added 1.49 million, to hit 29.38 million. And in the Asia Pacific region, subscribers climbed 1.54 million, to 14.49 million.

Overall, Netflix reported a third-quarter profit of $790 million, or $1.74 a share, compared with $665.2 million, or $1.47 a share, a year earlier. Revenue rose 23 percent, to $6.44 billion.

Analysts on average expected per-share profit of $2.13 — compared with Netflix’s guidance for $2.09 — and $6.383 billion in revenue.

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