Netflix (NFLX) reported second-quarter earnings on Thursday after market close, initially sending shares down 6% in after-hours trading after the streaming giant’s revenue forecasts did not meet Wall Street expectations for the current quarter.
Shares recovered somewhat in premarket trading on Friday, paring losses to 1.4% as investors digested an increase of more than 8 million subscribers and higher expectations for both revenue and profit. After the opening bell in New York, Netflix shares rose by a weak 0.6%.
Revenue hit $9.56 billion in the second quarter, up 16.8% from the same period last year, as the platform continued to focus on key initiatives such as restricting password sharing and introducing an ad-supported tier, in addition to price increases implemented last year on certain subscription plans. According to Bloomberg, analysts had expected revenue of $9.53 billion.
Future projections
For the third quarter, Netflix expects revenue of $9.73 billion, below consensus estimates of $9.83 billion. However, the company raised its full-year 2024 revenue growth guidance to a range of 14% to 15%, from a previous 13% to 15%.It also expects the annual operating margin to reach 26%, up from 25% previously.
“Our updated revenue guidance reflects strong membership growth trends and business momentum, partially offset by the strengthening of the U.S. dollar against most other currencies,” management said in the earnings release.
Netflix: What’s Coming
Diluted EPS beat estimates for the quarter, coming in at $4.88 versus consensus expectations of $4.74 and well above the $3.29 reported in the same period last year. For the third quarter, Netflix is guiding for EPS of $510, above consensus expectations of $474.
Once again, subscriber numbers showed solid growth with more than 8 million users added, driven by key shows such as the final season of “Bridgerton.”
Subscriber additions of 8.05 million beat expectations of 4.7 million, following the 9.3 million added in the first quarter. By the second quarter of 2023, the company had added 5.9 million paid users.
Prior to Thursday’s report, Netflix shares had been performing strongly, up more than 30% since the start of the year. In May, Netflix announced it had won streaming rights to two NFL games that will air on Christmas Day as part of a three-season deal.
Additionally, in its May presentation to advertisers, the company reported that its ad-supported tier had reached 40 million monthly active users globally, a significant jump from the 15 million disclosed in November and an increase of 35 million users compared to the previous year.
In Thursday’s earnings release, the company said it is making “steady progress in expanding our advertising business” with 34% growth in ad-supported tier members quarter over quarter.
In another attempt to boost the ad-supported tier, Netflix announced it would be eliminating its Basic plan membership in the US and France after removing that subscription option in the UK and Canada last year. The Basic plan had previously been its cheapest ad-free option, priced at $9.99 in the US.
“Given this sustained progress, we believe we are on track to reach critical scale of ad subscriber support for advertisers in our ad-supported countries in 2025, creating a strong foundation from which we can further grow our ad membership in 2026 and beyond,” the company said.
This growth comes as Netflix has raised prices for its ad-free subscriptions in a bid to attract more users to its ad-supported offering. Restricting password sharing has also boosted revenue growth and increased the platform’s total subscriber base.
It hasn’t been a completely upward trajectory, however. In April, Netflix announced it would stop reporting subscriber numbers, along with a key profitability metric — average revenue per member — starting next year.
This has raised concerns about the long-term growth of its subscribers and whether the recent growth momentum can be maintained over the long term.
Source: Ambito
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