Netflix Q3 Reaction: Why the Subscriber Beat Was So Clutch 

Netflix Q3 Reaction: Why the Subscriber
Cheyne Gateley/VIP+

It felt like Netflix dodged a bullet Tuesday when it reported its Q3 2021 results. 

Netflix’s 4.4 million in Q3 subscriber additions beat analyst expectations of 3.7 million and its own guidance of 3.5 million.  

It's always Netflix’s goal to post strong subscriber numbers. But it would have been a particularly bad look for the streamer to miss this most recent quarter’s subscriber expectations given Netflix’s particularly soft H1 ’21 where it added just 5.5 million subscribers (and lost nearly 400,000 U.S./Canada subscribers in Q2). 

Management had been attributing to recent soft subscriber growth to COVID production delays and the massive 26 million subscriber additions of H1 ’20 eating away at potential growth in subsequent quarters. It’s not like Netflix co-chief Ted Sarandos could point to those factors again for weak Q3 results. 

And another weak quarter of net subscriber additions may have caused some investors to start doubting Netflix management’s content strategy, especially if the streamer again lost subs in the U.S. and Canada. 

After all, the company is still dealing with the controversy surrounding its Dave Chappelle comedy special “The Closer,” which has been criticized for being transphobic and homophobic. Sarandos had already chosen defend the special in separate memos surrounding the comedy special (read VIP+’s commentary on the second Sarandos response), and that decision would have looked even worse in the face of a declining domestic sub base. 

Still, the investor reaction to Netflix’s earnings were surprisingly subdued, with shares down slightly in after hours trading.  

Perhaps it was because Netflix stock had already risen roughly 14% between July 1 and Sept. 30.  

Keep in mind that leading up to Netflix’s most recent earnings call there were some signs that Netflix could pull off a subscriber beat in Q3. 

The streamer on Sept. 17 debuted the now-unignorable global hit “Squid Game,” which reached more Netflix households (142 million) in the four weeks following debut than any other original from the streamer. Later this year, Netflix will start reporting the number of hours a title was streamed following its debut, rather than the number of households that streamed a title. 

Netflix reportedly estimated that “Squid Game” generated over $900 million in value for its company, Bloomberg reported days ago. While it was unclear exactly how Netflix calculated that value, Bloomberg also reported “Squid Game” scored very high on an internal metric (“adjusted view share”) that factors in how many viewers of a title are new customers.  

That suggested the Korean-language series was a notable subscription driver for the company.  

And while global downloads of the HBO Max and Disney+ apps declined throughout July and August, downloads of Netflix’s app held steady, per Apptopia.  

No other SVOD app received more global downloads than Netflix did during July and August 2021 combined.  

One reason for that could have been Disney+’s relatively light originals slate during Q3. Perhaps the most notable Disney+ TV series over the last quarter was “Loki,” which debuted its last episode in mid-July. The most recent day-and-date releases for Disney were "Black Widow" (July 9) and “Jungle Cruise” (July 30). 

Those day-and-date movies generated tens of millions of dollars on Disney+, but Disney CEO Bob Chapek at a Goldman Sachs conference in late September said that the Disney streamer would add fewer subscribers in calendar Q3 than it did in the quarter prior.  

Unlike Disney+, Netflix’s service has games that could better position it to avoid slowing subscriber growth in the quarters ahead.  

Netflix is still early in its games push, with its testing so far focused on mobile games. It’s possible that mobile video games could eventually help Netflix appeal particularly to certain consumers in international markets like India, where SVOD viewing on smartphones is common.  

Omdia has estimated that 82% of online video services in India are accessed through smartphones.