Netflix financials beat expectations, ad tier proves popular – but outlook was a little shy
Netflix (NASDAQ:NFLX) stock was on the back foot in Thursday night’s ‘afterhours’ dealing, despite revealing expectation-beating financials for its second-quarter.
Revenue, earnings and subscriber numbers all surpassed Wall Street expectations.
At $9.56 billion, revenue was up nearly 17% year-over-year and was slightly better than the $9.53 billion consensus, whilst earnings per share was reported at $4.88 versus $3.29 a year ago and an analyst estimate of $4.74.
Subscribers increased by around 8 million, versus a forecast of 4.7 million, with the streamer highlighting the popularity of its ads-included subscription tier.
But, the streamer’s revenue guidance for the third quarter disappointed compared to prior market consensus – with the company expecting $9.73 billion versus the $9.83 billion pencilled in by analysts.
In New York, Netflix stock initially fell around 6% before recovering.
Netflix share price turned positive about an hour after the results were published.
Defending content spend
The company, meanwhile, talked up the streamer’s continuing investment in content.
“People remain hugely excited about and inspired by premium storytelling — in Q2, for example, the Bridgerton universe generated a massive 172 million views,” Netflix said in its letter to shareholders.
“It all starts with variety and 45 quality, because if people don’t think something is great, or it’s not to their taste, they will simply switch it off. And we need people to press play and stay to drive engagement.
“Commentators often ask if Netflix needs so many shows and films, and the answer is an emphatic yes.
“With 278M member households — and more than two people per household on average — we’re programming for an audience of over 600 million.
“It’s a huge number and to delight this many people, we need lots of great stories that appeal to many different tastes and moods.
“It’s why we continue to increase the investment in our programming, even as many of our competitors are pulling back.”
Ads tier proving popular
Netflix’s ad-supported tier gained substantial traction, now accounting for 45% of new signups in markets where ads are available.
To encourage more users to switch to this plan, Netflix started phasing out its cheapest ad-free plan in Canada and the UK, with plans to do the same in the US and France next.
The company highlighted that its ad revenue is growing significantly, though it faces challenges in monetizing its expanding ad inventory.
“Ads fulfill two important strategic priorities for Netflix: first they enable us to offer lower prices to consumers; and second, they create an additional revenue and profit stream for the business.
“Just over 18 months since launch, we continue to scale our ads tier, which now accounts for over 45% of all signups in our ads markets.”
It added: “we believe that we’re on track to achieve critical ad subscriber scale for advertisers in our ad countries in 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond.
“Our ad revenue is growing nicely and is becoming a more meaningful contributor to our business.”
