Online video service (OTT) Netflix recorded better-than-expected strong results for the second quarter.
According to the earnings report Netflix released after the New York Stock Exchange closed on the 18th (local time), the number of new subscribers in the second quarter increased by 8.05 million worldwide, surpassing the expected 4.87 million. The total number of subscribers reached 277.65 million.
Second-quarter revenue also rose 16.8% year-on-year to $9.559 billion, slightly exceeding Wall Street’s estimate of $9.53 billion.
Operating profit increased 42.5% year-on-year to $2.603 billion. The operating margin rose 4.9 percentage points from 22.3% in the same period last year to 27.2%. Second-quarter earnings per share (EPS) were $4.88, surpassing the Wall Street average estimate of $4.74 compiled by financial information firm LSEG.
The company explained that subscriber growth was driven by the popularity of content aired last quarter, with ad-tier membership increasing 34% compared to the previous quarter. However, more specific figures were not disclosed.
The Wall Street Journal (WSJ) analyzed that Netflix’s efforts to change pricing and lineup, limit password sharing, and expand the ad tier are bearing fruit. Citi analysts said, "The results were solid, but considering the recent additional upward momentum, investor expectations were high."
Netflix stated that its annual revenue growth rate for this year is expected to be 15%, exceeding the previous forecast of 13%. Netflix’s third-quarter revenue forecast is $9.37 billion, below the market estimate of $9.81 billion, but the EPS forecast of $5.10 surpasses the market estimate of $4.74.
Additionally, Netflix expects the size of its ad-tier subscriber base to expand enough next year to appeal to major advertisers. Netflix said, "The advertising business is growing smoothly and making a meaningful contribution," but added, "Considering that building the business takes time and subscription revenue is large in scale, we do not expect advertising to be a major driver of revenue growth in 2024 and 2025."
Facing saturation in markets such as North America, Netflix plans to stop regularly disclosing subscriber growth numbers starting next year. Instead, the market is focusing on the advertising business as a new growth engine.
Netflix announced that it plans to gradually phase out the ad-free low-cost basic plan priced at $11.99 per month in the U.S. and France. This plan was previously discontinued in Canada and the U.K.
As for future business plans, Netflix is focusing on the gaming sector. Netflix stated, "We will launch a multiplayer game based on the universe of the series in line with the release of 'Ojingeo Geim' (Squid Game) Season 2, the largest TV series in Netflix history, within this year." They also revealed plans to release new game titles based on their popular original series and movies such as 'Emily in Paris' and 'Selling Sunset.'
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