After the market closed on Tuesday, Netflix (NASDAQ:NFLX) released its fiscal second-quarter earnings, as the firm struggles with persistent inflationary pressures, more competition, and a rise in subscriber turnover.
Following-hours trading on the streaming giant’s shares increased by more than 8% due to the Q2 subscriber data showing a lesser drop than anticipated. In light of the overall slowdown in subscriptions, increased pressure from the foreign exchange, and the dollar’s continued strength in relation to other currencies, revenue and adjusted earnings per share were mixed.
According to Bloomberg, here are Netflix’s second-quarter results in comparison to Wall Street consensus forecasts:
Revenue – $7.97 billion vs. the anticipated $8.05 billion
Adjusted profits per share (EPS) – were $3.20 compared to the projected $2.98.
Subscribers – 970,000 fewer subscribers dropped than the expected 2 million consumers.
After the streamer lost 200,000 customers in April, the predicted loss of 2 million paying users for the second quarter would have been the most significant quarterly fall in the company’s history.
Although analysts have acknowledged that the second half of the year may provide significant downside risks due to macroeconomic worries, Netflix’s Q3 subscriber outlook of 1 million net additions fell short of Wall Street’s average estimate of 1.9 million.
The Q3 revenue guidance came in at $7.84 billion as opposed to the projected $8.1 billion, which was less than anticipated.
In a letter to shareholders, Netflix stated, “Our goal and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content and marketing as we have done for the last 25 years and to better monetize our large audience.”
According to the platform, it anticipates free cash flow in 2022 to be “about +$1 billion, plus or minus a few hundred million dollars (assuming no further major moves in [foreign exchange])”.
Season 4 of “Stranger Things,” which premiered episodes 1 through 7 on May 27, might have saved Netflix for the quarter.
With 930.3 million hours viewed in its first 28 days and 1.3 billion hours viewed in its first four weeks, the Duffer Brothers’ production not only broke the record for Netflix’s biggest ever debut weekend but also received the most viewers of any English-language Netflix seasons.
In the wake of a market rally, Netflix stock, which closed Tuesday’s trading session at $201 a share, has lost about 70% of its value so far this year.
Is there a “Streaming Recession” coming?
Prior to Netflix’s much awaited earnings announcement, Morgan Stanley (NYSE:MS) expressed concern about the possibility of a “streaming recession,” lowering shares of Paramount Global (NASDAQ:PARA) and Fox Corporation (NASDAQ:FOX) as a result.
In the report, which was released on Monday, analyst Benjamin Swinburne stated that “we are decreasing net additions predictions across the board to reflect increased churn risk from customers downsizing their streaming portfolios in a more challenging economic climate.”
The recession vulnerability, he continued, may also have a detrimental impact on EBITA as businesses cut back on spending due to economic uncertainty, with Morgan Stanley also cutting its advertising forecasts “across the board.”
The analyst said that as ad budgets face greater pressure, “a potential recession presents risk to advertising forecasts, which may be worsened by Disney and Netflix expanding advertising inventory.”
However, in general, Wall Street is still optimistic that an ad tier could be the solution to at least some of Netflix’s issues and will be hoping for further information on the rollout during the company’s Q2 earnings call.
The platform updated its schedule for when users might anticipate it after announcing last week that it had teamed up with Microsoft (NASDAQ:MSFT) to help launch the new ad-based tier.
It will “likely start in a handful of markets where advertising spend is significant,” according to Netflix, who now expects the ad-based service to launch in the first quarter of 2023. “Our intention is to roll it out, listen and learn, and iterate quickly to improve the offering,” the company continued.
Any information regarding potential peak subscriber penetration in the United States and Canada, additional analysis of the company’s content and marketing spend strategy (the streamer is anticipated to spend $17 billion on content alone this year), and an update on its password sharing crackdown, which it is currently testing abroad, are all issues that Netflix’s leadership team should address.
Original article: https://finance.yahoo.com/news/netflix-q-2-earnings-170448268.html
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