Netflix Inc. (NFLX) recorded modest growth of its profits and revenue as the number of net added subscribers jumped in the last quarter amid the company's global crackdown on password sharing and the continued rollout of its new level of 39;cheap subscription. Shares of the company plunged as much as 8% in extended trading.
Key Points to Remember
- Netflix saw around 5.9 million net additions to its subscriber base last quarter, a sharp turnaround from its first-ever decline the previous year.
- Two major initiatives that have driven subscriber growth have been Netflix's crackdown on password sharing and the recent launch of a discounted, funded subscription plan. advertising.
- Netflix could be well positioned against rivals like Disney+ and Max, both of which have eliminated content in an effort to cut costs in recent months.
- The company's growing user base and substantial library of content national and international can enable it to withstand prolonged strikes by writers and actors.
Robust follower growth despite crackdown on password sharing
The sharp increase in the number of subscribers from 5.9 million last quarter underscores Netflix's success in overcoming last year's first ever drop in subscriptions, which more than halved the company's valuation.
As of the last quarter, Netflix had rolled out its paid sharing plan for around 80% of its revenue base. He plans to continue expanding coverage through the end of the year, with the aim of further increasing his income.
For Netflix, consistent user growth is key to improving subscription revenue and, given its new ad-supported membership option, to increasing advertiser spend. To that extent, the company has removed its cheapest ad-free subscription plan for new users in the US and UK.
Does Netflix have an edge over its peers?
The streamer's mixed earnings performance — slightly below consensus revenue estimates but beating EPS guidance — belies its strength against its peers in a tough year. Rivals such as Warner Bros. Discovery Inc. (WBD) and The Walt Disney Co. (DIS) both cut content from their streaming platforms to cut costs as they struggled to maintain free cash flow.
Netflix's quarterly revenue rose 2.7% to $8.2 billion, while net income rose 3.3% to $1.5 billion. Operating margin improved to 22% from 20% a year ago as the company tightened expense management.
Meanwhile, Netflix's free cash flow for the second quarter was about 100 times higher than the year-ago level. Additionally, the company's sizable library of TV shows and movies, augmented by increased US interest in Netflix's international titles, may help insulate it. ongoing strikes by writers and actors in Hollywood.
Company's free cash flow soars: $1.3 billion this quarter vs. last year at roughly break-even – also expected to continue to rise throughout of the year as spending slows amid strikes.
Netflix has announced that it will increase its free full-year cash flow estimate to $5 billion from $3.5 billion. It also expects third quarter revenue of $8.5 billion and strong paid net additions to its subscriber base in line with last quarter.
While Netflix shares traded lower after hours, the decline looked modest compared to gains of around 62% year-over-year. date, while the SPDR Fund in the Communication Services (XLC) sector has grown by around 40% over the same period. Netflix's year-to-date stock performance far exceeds that of Disney and Warner Brothers.
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