The streaming giant, Netflix, reported earnings that topped analysts' expectations for the second quarter as the company added more subscribers than estimated, thanks to its add-supported programme.
ADVERTISEMENTThe world's largest video streamer, Netflix, reported second-quarter earnings that exceeded analysts' forecasts in all aspects due to the success of its ad-supported tier. Its performance suggests the company maintains its strength against competitors as a result of this strategic change. Netflix's shares remained flat following the earnings report and were up 33% year-to-date at the market close on Thursday.
Netflix's subscriber growth tops estimates
The live streamer added eight million new subscribers in the second quarter, bringing its total users to 277.65 million, up 16.5% from the same quarter last year, compared with analysts' forecasts of 274.4 million. The company stated its ad-supported membership grew by 34% from the previous quarter and that it was building an in-house ad tech platform to be tested in Canada this year, with plans for a broader rollout in 2025. By region, paid membership grew the most in the Asia-Pacific region, up by 24% year on year. While the US market remained the biggest contributor to its revenue, users in EMEA (Europe, Middle East, and Africa) increased at a faster pace of 17%, making it Netflix's second-largest market in terms of sales.
Amid a sharp slowdown in user growth post-pandemic, Netflix launched a cheaper ad-supported tier late in 2022, aiming to spark new growth. The performance over the past year has proved that this strategic change has been successful. Moving forward, Netflix will no longer report quarterly subscriber numbers starting in 2025. Instead, it will shift its focus from user growth metrics to more traditional indicators such as profit margin and revenue growth.
Both revenue and EPS top expectations
In other metrics, overall revenue was recorded at $9.56 billion (€8.78 billion), rising 17% year on year, surpassing the estimated $9.53 billion (€8.75 billion). Net income came to $2.15 billion (€1.97 billion), up 44% from a year ago, with an operating margin of 27.2%, compared with 22.3% in the second quarter of 2023. The company reported earnings per share of $4.88 (€4.48), compared to the expected $4.74 (€4.35). It upgraded its guidance for 2024, expecting revenue to grow by 14% to 15%, up from the previous range of 13% to 15%. The operating margin is expected to be 26% for the whole year, higher than the previous projection of 25%.
However, Netflix's guidance for the current quarter falls slightly short of expectations, with a forecast of earnings per share of $5.10 on revenue of $9.73 billion. Nonetheless, its shares reached an all-time high seen in November 2021 on 9 July before pulling back in line with recent trends in the technology sector.
Netflix focuses on profitability
According to Nielsen’s data, Netflix accounts for an 8.4% share of total US TV viewing time, following YouTube at 9.9% in June. The third-largest streaming service, Amazon's Prime Video, only represented 3.1%. The company attributed its success to premium storytelling series, such as Bridgerton Universe, which generated 172 million views. Additionally, it has diversified its business into the gaming industry over the past three years and added Virgin River and Perfect Match in the second quarter.
The advertising initiative has been seen as the company's most successful strategic development. The streamer stated that the ad-supported tier fulfilled two important priorities: offering a cheaper price for consumers and generating revenue for the business. In the shareholders' letter, it says: "Given this sustained progress, we believe that we’re on track to achieve critical ad subscriber scale for advertisers in our ad-supported countries by 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond."
