Netflix (NFLX) reported second-quarter financial results on Wednesday that came in mixed as the platform continues its efforts to reduce costs and increase engagement in an increasingly competitive streaming landscape.
Turnover, although 2.7% higher compared to the same period a year ago, missed estimates despite new initiatives such as the crackdown on password sharing, which rolled out in the US at the end of May, along with the recently launched ad-supported tier.
The streamer also led to third-quarter revenue of $8.52 billion, below expectations of $8.67 billion.
Shares fell lower as a result, falling as much as 5% in after-hours trading.
Here are Netflix’s Q2 results compared to Wall Street’s consensus estimates, as compiled by Bloomberg:
Gain: $8.19 billion versus $8.30 billion expected
Adjusted earnings per share (EPS): $3.29 versus $2.90 expected
Subscribers: 5.89 million net additions versus 2.1 million net additions expected
Despite the missed revenue, profitability metrics such as operating margin and free cash flow steadily beat expectations.
Operating margin was 22.3% in the quarter, beating Netflix’s own forecast of 19%. The company reiterated its full-year operating margin guidance of 18% to 20%.
Free cash flow impressed at $1.34 billion, significantly ahead of consensus calls of $542 million. Netflix raised its expectation for full-year free cash glow to $5 billion, up from the previous $3.5 billion, citing the impact of the twin Hollywood strikes.
“We expect revenue growth to accelerate in the second half of ’23 as we begin to see the full benefits of paid sharing plus continued steady growth from our ad-supported plan,” Netflix said in the release. “While we’ve made steady progress this year, we have more work to do to accelerate our growth again. We remain focused on: creating a steady drumbeat of must-see shows and movies; improving the generation of revenue; increasing the enjoyment of our games; and investing to improve our service to members.”
Just before the results, the company quietly removed its cheapest ad-free streaming plan in the US.
The ‘Basic’ plan was offered to US consumers for $9.99 per month. The removal of this plan, which the company also did in Canada last month, comes as Netflix leans more heavily on the ad tier, which costs $6.99 per month.
Regarding the crackdown on password sharing, Netflix said it plans to roll out paid sharing to nearly all remaining countries on Wednesday. Sales in every region are now higher than pre-launch, the company said, with more signups than cancellations.
Netflix attributed the year-over-year decline in average revenue per user to the timing of its paid share rollout, which came late in the quarter, coupled with limited price increases over the past 12 months and a higher mix of member growth due to lower income countries.
Netflix best positioned amidst Hollywood strikes
Against the backdrop of earnings, Netflix executives are likely to discuss the Hollywood double strike as actors join writers on the picket lines.
SAG-AFTRA – the union representing about 160,000 actors, announcers, artists and other media professionals around the world – announced a strike last week after failing to strike a deal with the Alliance of Motion Picture and Television Producers ( AMPTP), which bargains on behalf of studios.
According to a new report from Moody’s released Monday, Netflix is among the best-positioned companies in the event of a prolonged work stoppage, along with Comcast (CMCSA), Fox (FOXA), Sony Group (SONY), Amazon (AMZN) and Apple (AAPL).
“Large studios, network owners and streamers that are well diversified by business, content genre (news and sports), or geographic production and library, and have relatively strong balance sheets, are least at risk,” the report said.
Wedbush’s Pachter reiterated this stance in a recent interview with Yahoo Finance Live, highlighting Netflix’s ability to run amid the strikes.
“Netflix would love for this to drag on for another five years,” he joked, adding that the studio “will not be the first” to comply given its strong overseas presence, breadth of content and the profitable balance sheet.
Alexandra channel is Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, Linkedin, and email her at email@example.com
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