The Hollywood Reporter
Netflix reported a big second quarter, adding 5.9 million new paid subscribers to beat Wall Street expectations and further cement itself as the benchmark company in subscription streaming video.
Netflix, led by co-CEOs Ted Sarandos and greg Peters, reported revenue of $8.2 billion, and net income of $1.5 billion. It now has 238.4 million global paid memberships.
Netflix had previously told investors that it expected $8.2 billion in revenue in Q1, and operating income of $1.6 billion. It hit the revenue number but beat on income, hitting $1.8 billion in operating income in Q2.
The Q2 earnings report is the first since the company began its password-sharing crackdown in the U.S. (it calls the strategy “paid sharing,” as it encourages password sharers to pay to add another subscriber or to buy their own subscription), and the strategy appears to be paying clear dividends.
“The cancel reaction was low,” the company said, adding that with the success of its paid sharing plan so far, it will expand it to “almost all” of its remaining countries.
And it comes as Netflix continues to push its advertising-supported plan. Earlier on Wednesday, the company axed its cheapest ad-free plan (called the “Basic” plan), pushing new or returning subscribers to either opt for its $6.99 ad-supported plan or its $15.49 standard ad-free plan. The elimination of the $10 basic plan suggests that it wants to drive more new subscribers to that ad plan, which executives have said delivered more revenue per subscriber than its standard plan.
Netflix, in its shareholder letter Wednesday, said that the revenue from the ad tier remains not material to the company’s bottom line.
“Building an ads business from scratch isn’t easy and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream,” the letter said.
Netflix’s revenue growth and profit margins have become the envy of the industry, with legacy competitors like Disney, Paramount, NBCUniversal and Warner Bros. Discovery still bleeding cash as they try to make their own streaming services profitable. All of them say they are targeting 2024 to make their offerings turn a profit.
Netflix noted that push for profit in its letter, and added that tech companies like Amazon and Apple pouring cash into streaming means that “there’s quite a competitive battle happening.”
“But while streaming is intensely competitive, we’ve shown that with strong execution and focus, it can be a great business,” the letter adds. Long term success takes strength in both entertainment and technology, a combination that’s not been required of large media or tech companies in the past.
Netflix says that in Q3 it expects revenue of $8.5 billion and operating income of $1.9 billion, with net subscriber additions comparable to Q2.
But the company also signaled that it has “more work to do to reaccelerate our growth.”
A core piece of that is “engagement,” which in turn is driven by a steady stream of new films and TV series. Netflix touted its own viewership and engagement data, and also took something of a victory lap for its own Top 10 lists.
“We believe sharing this engagement data on a regular basis helps talent and the broader industry understand what success looks like on Netflix—and we hope that other streamers become more transparent about engagement on their services over time,” the company wrote.
The statement is sure to raise eyebrows among WGA and SAG members, who have called for more transparency from streaming services, and have found Netflix’s disclosures to not meet the bar.
In fact, Netflix’s letter did address the strikes, albeit in a finance-forward way: The company says that with lower content costs due to the pause on many productions, its estimate for free cash flor this year by $1.5 billion.
In other words, while its content spending is down and subscriptions are up, its profits will improve. However, it needs that content to continue driving new subscribers and engagement in the long term.
Source: Hollywood Reporter
