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Stranger Things helps rescue Netflix from its worst subscriber-growth nightmares

As the "streaming wars" intensify, Netflix faces questions about its future after reporting its first drop in US streaming subscribers three months ago.

Joan E. Solsman Former Senior Reporter
Joan E. Solsman was CNET's senior media reporter, covering the intersection of entertainment and technology. She's reported from locations spanning from Disneyland to Serbian refugee camps, and she previously wrote for Dow Jones Newswires and The Wall Street Journal. She bikes to get almost everywhere and has been doored only once.
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Joan E. Solsman
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The third season of Stranger Things -- and all the viewers flocking to its retro sci-fi smash -- hit Netflix at the very beginning of the company's third quarter. 

Netflix

Netflix's hit show Stranger Things helped exorcise some demons plaguing the streaming giant: The retro sci-fi series helped push Netflix's global subscribers to 158.33 million, just shy of the company's guidance but still solid enough to ease fears the streaming giant's growth had peaked. 

About 64 million accounts watched Stranger Things in the first four weeks of release, Netflix said Wednesday in its third-quarter report. (For TV shows, an account needs to watch 70 percent of a single episode to count as a view.)

Overall, it was Netflix's US growth that came up short. Domestically, Netflix added 520,000 streaming customers for a total of 60.62 million, shy of its guidance for 800,000 new members. Its international subscriber base grew by 6.26 million members to 97.71 million, slightly better than the 6.2 million new subscribers the company had predicted.

Shares were up 7.9% at $309 in after-hours trading. Netflix stock had dropped 18% in the last six months, as the subscriber-growth worries have weighed on shares. 

The results come at a crucial time for Netflix, which needed to shake off worries about flagging subscriber growth just as the so-called "streaming wars" intensify. Three months ago, Netflix reported its first drop in US subscribers in eight years. At the time, Netflix pointed to lingering effects of price increases and its sleepy release slate. But investors and analysts, who obsessively track Netflix's subscribers, fretted the weak report was an early sign of fatigue right before Netflix would face some of its toughest competition yet.

Competition with Disney, Apple and more

A parade of major media properties are putting out their own rivals to Netflix in the next six months. Disney's high-profile offering, Disney Plus, will launch Nov. 12 with a huge catalog of shows, movies and originals -- including many of the Disney blockbuster movies that Netflix used to stream. Apple kicks off its streaming venture Apple TV Plus with nine titles on Nov. 1, and AT&T's HBO Max and NBCUniversal's Peacock are coming early next year with TV favorites like Friends, The Office and The Big Bang Theory. 

Netflix CEO Reed Hastings has previously been optimistic about the onslaught of new competition, which he has said will be a "whole new world."

"The advantage of having something catchy like the 'streaming wars' is it draws more attention," he said in July, adding that all that attention will heighten cord cutting to the benefit of many streaming services. 

The company on Wednesday said in a letter to shareholders that despite new competitors having "some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world."

Watch this: Stranger Things Saved Netflix! Well, sort of...

Beyond just Stranger Things, Netflix had other titles that proved popular in the latest period. Its high-school rom-com Tall Girl, released Sept. 13, was viewed by 41 million accounts in its first four weeks, for example.  The latest season of Money Heist, a Spanish series about a gang of thieves, pulled in 44 million views in first four weeks. Other thrillers drew attention, too: Secret Obsession, about a young wife with amnesia, was viewed by 40 million accounts in its first four weeks, and Unbelievable, a true-crime drama contrasting how far-flung police departments handled shocking rape cases, was watched by 32 million member households.

Looking ahead, Netflix expects to add 7.6 million streaming members in the fourth quarter, with 600,000 in the US and 7 million internationally. Those projections compared with analysts' consensus estimate for 9.443 million total new subscribers, according to Thomson Reuters.

Overall, Netflix reported a profit of $665.2 million million, or $1.47 a share, compared with $402.8 million, or 89 cents a share, a year earlier. Revenue rose 31 percent to $5.245 billion. Analysts on average expected per-share profit of $1.04 -- matching Netflix's guidance -- and $5.248 billion in revenue.

Looking ahead to the fourth quarter, Netflix predicted 51 cents per share in earnings. On average, Wall Street analysts who track Netflix expected 82 cents.

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