Netflix added 5.9 million global subscribers, reaching 238.3 million, with password sharing pushing subscribers to the months-old $7-a-month plan with advertising.
Earnings per share of $3.29 exceeded Wall Street analysts’ consensus forecast of $2.86, while total revenue came in a bit light at $8.2 billion. Analysts had expected $8.6 billion.
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The company’s fortunes have certainly changed compared with the year-ago second quarter. It reported then a loss of 970,000 subscribers as it was beginning its long crawl back to the good graces of investors. Need the comeback expressed in a single stat? Free cash flow totaled $1.339 billion in the current-year second quarter. A year ago, it was $13 million.
“Now that we’ve launched paid sharing broadly, we have increased confidence in our financial outlook,” the company said in its quarterly letter to shareholders. “We expect revenue growth will accelerate in the second half of 2023 as monetization grows.” Subscriber growth should be in the range of that in second quarter (around 6 million), the letter added.
Despite the stellar subscribers numbers and earnings beat, Netflix shares declined by about 4% in after-hours trading. They have run up 50% in just the past two months and have more than tripled since the dark days of early 2022, when consecutive subscriber slips and bleak executive comments shaved two-thirds of the company’s market value.
The results from the quarter ending June 30 reflect the second full quarter of operation for the $7-a-month advertising-supported subscription tier. The password sharing plan carries an $8 monthly charge in the U.S. for a practice that used to be allowed (or even encouraged) at no charge.
Despite warnings from the company’s management team and many of those who track its movements of subscriber backlash, the attempt to derive revenue from something that the company used to allow for free appears to have gone relatively smoothly. The “cancel reaction was low” in the U.S. and in many other countries, the company wrote in the shareholder letter.
Given the overall pricing scheme in the U.S., the password sharing limitations appeared to have made the new ad-backed tier more attractive. (Hours before the earnings release, word emerged that the company had eliminated the $10-a-month Basic subscription tier in the U.S. and other territories as part of the ongoing effort to promote the cheaper Basic With Ads plan.) Without breaking out numbers, the shareholder letter noted that Basic With Ads has “nearly doubled” since the first quarter, albeit from a low base.
In reporting the financials, Netflix said it would be expanding its password sharing plan to virtually its entire global footprint after rolling it out in May to more than 100 countries (including the U.S.). In certain countries where it plans to start addressing password sharing (the company cited Indonesia, Croatia, Kenya and India) an option to add an additional subscriber at a lower monthly cost will not be offered, given that prices have recently been lowered in those territories, Netflix noted.
The quarterly earnings report also landed during a time of nearly unprecedented labor angst as the WGA and SAG-AFTRA strikes continued to upend the industry.
On the company’s last quarterly earnings interview in April, Co-CEO Ted Sarandos went out of his way to praise the WGA as the guild’s strike deadline neared. “We respect the writers, and we respect the WGA. We couldn’t be here without them,” he said. In the event that negotiations failed, Sarandos noted, the company has a “large base of upcoming shows and films from around the world. We can probably serve our members better than most.”
Investors, union members, their sympathizers and many others will be listening closely for comments from Sarandos and other top-level execs when Netflix posts its new quarterly earnings interview today at 3 p.m. PT.
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