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Netflix subscribers surge in second quarter despite password sharing crackdown

Netflix's second-quarter earnings released on Wednesday revealed the streaming service's decision to block password sharing and offer different membership plans paid off.

Netflix's release of its second-quarter earnings on Wednesday showed massive growth in subscribers, proving success with the controversial crackdown on password sharing and the rollout of a cheaper subscription option.

The video streaming giant announced that it gained an additional 5.9 million subscribers between April and June, nearly 3.7 million more than the 2.2 million analysts surveyed by FactSet Research anticipated. The service predicted its subscriber growth during the third quarter will be similar.

Though Netflix has seemingly bounced back from losing over one million subscribers during the first half of last year, Investing.com analyst Jesse Cohen told the Associated Press he thinks another slowdown is in the company's future.

"It will be a challenge for Netflix to sustain this pace of subscriber growth in the future," Cohen said.

NETFLIX STARTS PASSWORD-SHARING CRACKDOWN IN UNITED STATES

Netflix has not experienced a massive surge in subscribers since the second quarter of 2020 when it gained 10 million largely due to the impact of the coronavirus pandemic.

In recent months, Netflix has changed its platform – revealing a decision to start blocking password sharing, which sparked a bit of public outrage, and revamping its membership options.

The company estimated that nearly 100 million people worldwide were "freeloading viewers" on the platform, meaning they were watching content at the expense of another household. Those people are now required to open their own accounts or hop on to an account with a standard or premium plan subscriber, which allows people in different households to watch with an $8 monthly surcharge.

In a shareholder letter, management said the crackdown on password sharing is resulting in a "healthy conversion of borrower households into full paying Netflix memberships."

NETFLIX STOPS OFFERING BASIC MEMBERSHIP PLAN IN US

Netflix also shared as part of Wednesday's earnings release that it would be phasing out its cheapest ad-free plan – a $10 service in the U.S. Existing subscribers playing for the plan can keep it, but it will no longer be available as an option to new subscribers.

The shift is aimed at pushing more people toward the $7 monthly plan (which includes commercials in hopes of boosting ad revenue), the $15.50 monthly standard plan or the $20 monthly premium plan.

The new pricing changes helped Netflix earn a 3% increase in revenue, totaling $8.2 billion, during the second quarter compared to the same time last year.

Earnings during the second quarter only saw a slight increase year-to-year with $1.49 billion this year and $1.44 billion last year. Earnings per share came in at $3.29 per share, which is higher than analysts' estimate of $2.85 per share, FactSet reported.

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Netflix reported that it ended June with 238.4 million worldwide subscribers.

The Associated Press contributed to this report.

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