Netflix quarterly revenue falls short of estimates despite healthy user growth
Netflix gained 5.89M new members by curbing password sharing, but revenue missed expectations. Its income from operations grew significantly to $1.83B.
Streaming platform's second quarter revenue fell short of analyst estimates, sending its shares tumbling nearly 9% in after hours trading.
The company reported a quarterly revenue of $8.187 billion, which is slightly below the projected revenue of $8.24 billion. Profit in the quarter was $3.29 a share, above the company’s forecast of $2.84 a share.
The revenue numbers did not meet expectations despite the crackdown on password sharing, which helped Netflix add 5.89 million new members during the three months ending June.
Netflix said it has launched a programme to curb account sharing in more than 100 countries, covering 80% of its revenue base, with most of the remaining countries to be added to the programme.
Netflix's income from operations also experienced a notable surge, increasing by over 22% to reach $1.83 billion, consequently elevating the operating margin to 22.3%.
Netflix is also facing the ire of writers who are currently on an industry-wide strike damanding better compensation. These continued strikes were not an outcome it wanted, and "very much hoped to reach an agreement," said Netflix CEO Ted Sarandos in a video interview during the earnings call.
As a result, the streaming giant said it has updated its expected free cash flows to $5 billion, up from its previous estimate of $3.5 billion.
"Our updated expectation reflects lower cash content spend in 2023 than we originally anticipated due to the timing of production and the ongoing WGA and SAG-AFTRA strikes," the company said in a letter to shareholders.
Netflix anticipates a surge in revenue during the second half of the year, relying on steady advancements in its ad-supported service tier and the global rollout of account sharing options for paid subscribers to reap its full benefits.
However, Netflix said revenue from ad supported service tier are "not material enough" to offset revenue.
"We’re seeing healthy conversion of borrower households into full paying Netflix memberships as well as the uptake of our extra member feature," Netflix said in a statement.
"Beginning today, we’ll start to address account sharing between households in almost all of our remaining countries. In these markets, we’re not offering an extra member option given that we’ve recently cut prices in a good number of these countries (for example, Indonesia, Croatia, Kenya, and India) and penetration is still relatively low in many of them, so we have plenty of runway without creating additional complexity," it added.
Edited by Megha Reddy