Netflix earnings show strength while the rest of the media industry struggles – CNBC

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LOS ANGELES, CALIFORNIA – JUNE 12: Netflix CEO Ted Sarandos attends Netflix’s PHYSEE event for “Squid Game” at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charley Gallay/Getty Images for Netflix)
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The main takeaway from NetflixThe second quarter gain is that business is…good.

That’s right. The fundamental business of a major media and entertainment company is fine.

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Netflix added 5.9 million subscribers in the quarter, a sign that its two key initiatives for 2023 — a crackdown on password sharing and launching a cheaper $6.99 a month ad tier — are bringing in new subscribers. Netflix added 1.2 million subscribers in the United States and Canada in the quarter – its biggest regional quarterly gain since 2021.

This is not the story for the rest of the media industry. disney And Warner Bros. Discovery spent the entire year scrapping content from its streaming services to avoid paying remnants and save on licensing fees. Both companies have laid off thousands of employees over the past 12 months to boost free cash flow. Paramount Global And Comcast‘s NBCUniversal both said 2023 will be the biggest annual loss ever for their streaming companies.

Meanwhile, Netflix raised its free cash flow estimate to $5 billion for the year. Previously, the company had estimated it would have $3.5 billion, but the actors’ and writers’ strikes will cut content spending. That means Netflix will have even more money than previously expected.

Next quarter, Netflix expects the number of subscribers to return to around 6 million. The company said sales will increase in the second half of the year as it sees “the full benefits” of its crackdown on password sharing and the steady growth of its ad-supported plan.

Back on track

Last year, Netflix’s valuation fell 60% as streaming subscriber growth stalled. The company spent ample time on earnings conference calls, focusing on and explaining its new video game business, which will launch in mid-2021, to help start a new growth story.

This quarter’s shareholder letter barely mentions video games.

Why? Because unlike the rest of the media industry, Netflix doesn’t need a new story. The old one still works. Streaming is growing. The money stacks are rising. Advertising enthuses investors. Netflix has a steady pipeline of international content and an extensive library to weather a protracted strike of writers and actors.

“The lack of references to video games in the shareholder letter suggests that advertising is the shiny object that commands the company’s most attention,” said Ross Benes, an analyst with research firm Insider Intelligence.

Netflix shares fell 5% after hours. That’s more a symptom of profit-taking after Netflix’s big gains this year (up more than 62% from Wednesday’s close) than anything to be upset about in the first-quarter earnings.

After a sharp decline last year, the company is back on track. And it didn’t even have to change trains.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

– CNBC’s Lillian Rizzo contributed to this article.

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