The revenue figure, along with a weaker-than-expected Q3 revenue forecast, overshadowed the addition of 5.9 million new streaming customers from April through June and earnings that far exceeded forecasts.
Shares of Netflix fell 8.9% after results at $435.
Netflix is looking for new ways to make money as streaming competition heats up and markets approach saturation in the United States. The company launched a cheaper tier with ads last November and began asking password borrowers to pay in a widely publicized rollout that rolled out in May.
The company said it expected revenue growth to accelerate in the second half of the year, adding that it aimed to continue creating compelling shows and movies, improve revenue generation, boost its video game business and improve the user experience.
“While we’ve made steady progress this year, we have more work to do to accelerate our growth again,” the company said in its quarterly letter to shareholders.
Discover the stories of your interest
The company reported diluted earnings per share of $3.29 for the second quarter, higher than the consensus forecast of $2.86 from analysts polled by Refinitiv. The nearly 6 million new subscribers surpassed the 1.9 million Wall Street had expected. Netflix had a total of 238.4 million subscribers worldwide at the end of June.
Quarterly revenue rose 2.7% from a year earlier to $8.2 billion, beating analyst forecasts of $8.3 billion. The company estimated that sales in the third quarter would be $8.5 billion. Wall Street had predicted $8.7 billion.
Analyst Craig Huber of Huber Research Partners said some shareholders may have become overly optimistic about Netflix’s ad level and password crackdown.
“Some investors’ expectations for[the third quarter]were too far ahead of what management’s guidance looks like to reality,” said Huber.
As the company added subscribers, it said average revenue per member was down 3% from a year earlier. This was partly because many of the new registrations came from countries where Netflix charges lower prices.
Netflix said its ad level remained a small portion of its membership base and current ad revenue is not material.
“We have a long way to go from where we are today, even to reach 10% (of sales),” Chief Financial Officer Spencer Neumann said in a post-earnings interview with an analyst.
Jeffrey Wlodarczak, an analyst at Pivotal Research Group, attributed some of the share’s post-result decline to investors selling to take profits. Netflix shares are up 62% this year, with over 8% this month.
Like its competitors, Netflix is grappling with strikes from tens of thousands of Hollywood actors and writers. The labor action has caused many film and television productions to shut down, though analysts say Netflix has an advantage because of its global production.
Netflix raised its free cash flow estimate for 2023 from $3.5 billion to $5 billion, in part because it will spend less on content as productions are halted.
Netflix co-CEO Ted Sarandos, noting that he grew up in a union family and recalled the hardships of his father going on strike, said he hoped labor tensions would be resolved soon.
“Let me start by making something absolutely clear: this attack is not the outcome we wanted,” Sarandos said.
Adblock test (Why?)