NETFLIX extended its lead over the streaming competition, adding eight million customers in the second quarter, but a cautious forecast sent the shares lower in extended trading.
The subscriber results, announced in a shareholder letter on Thursday (Jul 18), topped expectations in every region around the world and included 2.8 million new customers in the Asia-Pacific. Analysts expected a total of 4.9 million on average.
The company’s crackdown on password sharing and the introduction of an advertising-supported subscriber plan propelled Netflix to its second-best first half, trailing only the pandemic-fuelled boom in 2020. The less-expensive plan with ads accounted for almost half of new sign-ups last quarter in markets where it’s offered, and the company said it will be large enough to appeal to major sponsors next year.
This quarter, Netflix expects to deliver earnings of US$5.10 a share, higher than Wall Street estimates, on sales of US$9.73 billion, which is slightly less than forecast. The company said subscriber gains will trail last year’s 8.76 million, while analysts forecast 5.18 million.
Netflix’s surge in growth has occurred while most of its competitors have slowed down, struggling to attract customers and pay for new shows. The service’s share of total TV viewing in the US climbed to more than 8 per cent in the most recent month, more than double any other paid streaming service, according to Nielsen data. Netflix delivered a number of major hits last quarter, including a new season of Bridgerton, the surprise hit Baby Reindeer and the French movie Under Paris.
“The challenge for so many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services,” the company said.
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For the second quarter, Netflix said, earnings rose 48 per cent to US$4.88 a share, beating estimates of US$4.74. Revenue increased 17 per cent to US$9.6 billion, slightly exceeding projections. It ended the quarter with 277.7 million customers worldwide.
Shares of Netflix were down more than 2 per cent in extended trading at 4.22 pm in New York. Bullish investors have been pushing the stock back towards the all-time closing high of more than US$690 that they reached in November 2021.
Netflix plans to stop reporting subscriber numbers next year, which many analysts interpreted as a bad sign about their growth going forward.
Yet the company, which has added more than 17 million customers this year, struck a confident tone on Thursday, raising its full-year estimate for profit margins.
Management is increasing the company’s investment in video games, with plans to release one new title every month. It will make a Squid Game-inspired video game later this year timed to the debut of the second season of that show. BLOOMBERG
