Netflix (NFLX) Q2 2023 Earnings

Netflix It said on Wednesday that quarterly revenue and subscriptions increased as efforts to curb password sharing continued.

According to Refinitiv, the company’s report for the second quarter compared to analysts’ expectations:

  • Earnings: $2.86 per share vs. $3.29 per share expected
  • Income: $8.19 billion vs. $8.30 billion expected

The streaming giant said it added 5.9 million customers during the second quarter amid its broader crackdown on password sharing in the U.S. Netflix said Wednesday it would roll out the new policy to its remaining customers.

Shares of Netflix fell as much as 8% in after-hours trading.

The company reported revenue of $8.19 billion, up 3% from the previous year. Net income of $1.49 billion was up from $1.44 billion in the prior quarter.

The earnings report comes as investors look for more information on Netflix’s implementation of ad-supported streaming tiers and attempts to increase subscriptions by eliminating account sharing.

However, Netflix said it was too early to report a breakdown of account revenue from the ad-supported layer introduced late last year, as well as the new password policy.

On Wednesday, Netflix said it expects revenue growth in the second half of the year as it begins to “see the full benefits of paid streaming and steady growth in our ad-supported plan.”

Netflix now says it forecasts revenue of $8.5 billion for the third quarter, up 7% year-over-year. He attributed the expected revenue growth to more moderately paid memberships.

The company also expects paid net subscriber additions in the third quarter to be similar to the second quarter. Meanwhile, Netflix expects revenue growth to be “more significant” in the fourth quarter as efforts to crack down on password sharing gain steam and ad revenue increases.

In May, Netflix began notifying members of its policy of preventing the use of other people’s accounts. Subscribers can either transfer a profile to someone outside their household to pay their personal bill, or the member can pay an additional fee of $7.99 per person.

According to Antenna’s report, the company’s subscriber base increased in the weeks following the implementation of the sharing policy.

Netflix executives declined to provide specifics on the paid-sharing initiative’s rollout to date on Wednesday’s earnings call.

Co-CEO Greg Peters said Wednesday that the company won’t see the full impact of the policy for several quarters.

“It’s not something that happens overnight,” Peters said on the call. “Partly because of the gradual interventions and partly because some borrowers won’t sign up for their accounts right away, but will do so over the next month or three months or six months or maybe longer. we’re opening a title they’re particularly interested in.”

Executives noted that password sharers who open their own accounts have similar characteristics to longtime customers, leading to company expectations. high retention rate.

Netflix introduced both new sharing policies and ad tiers last year in response to its first subscriber loss in more than a decade in 2022.

Shares of Netflix soared as the initiatives rolled out. The company’s shares are up more than 60% this year, hitting a 52-week high. Wednesday amid expectations it will show growth this quarter.

On Wednesday, the company said it hoped the changes would help it “generate more revenue from a larger base” and would like to use the additional funds to reinvest in the platform.

In May, Netflix said it was expanding its paid sharing policy to more than 100 countries, which account for more than 80% of its revenue.

“Cancelation response has been low, and while we’re still in the early stages of monetization, we’re seeing a healthy conversion of borrowing families to full-paid Netflix memberships,” Netflix said Wednesday, adding that it will address the issue in the remainder of the rollout. countries where it is available.

Meanwhile, media companies have increasingly turned to ad-supported broadcasting to achieve profitability.

During its May call to advertisers, Netflix revealed few details about its ad-supported tier, though it was enough to send its stock higher. The company said it has 5 million active users for the new tier and 25% of its new customers have signed up for it in territories where it is available.

On Wednesday, Netflix confirmed it was scrapping its “basic” ad-free plan, making its standard plan with ads the cheapest option at $6.99 a month. Ad-free standard and premium tiers cost $15.49 and $19.99 per month, respectively.

These initiatives come at a time when the media industry is going through one of its most turbulent times in some time.

Industry analysts have long suspected that the industry could consolidate, particularly through mergers and acquisitions.

On Wednesday, CEO Ted Sarandos said Netflix is ​​looking at opportunities to buy intellectual property and build its content library.

“Some of these assets are highlighted for a reason,” Sarandos said of potential media companies or assets for sale. “Our M&A activity will be primarily around IP that we can turn into great content for members. Traditionally, we’ve been very strong builders over buyers, and that hasn’t changed.”

Netflix is ​​also grappling with the potential fallout from Hollywood writers’ and actors’ strikes.

Analysts expect Netflix to fare better than other media companies during the shutdown, especially because of its deep content from international sources.

As a result of the strike, Netflix raised its free cash flow forecast for 2023 to at least $3.5 billion to $5 billion due to lower spending on content this year.

Sarandos said on Wednesday’s call that Netflix has plenty of fresh content in the pipeline, but didn’t say how long that stream would last. still, he said the strike needed to come to an end.

“We have a lot of work to do. There are some complicated issues,” Sarandos said. “We are very committed to reaching an agreement as soon as possible that is fair and allows the industry and everyone in it to move forward.”

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