Netflix stock has risen by more than one-third since its most recent earnings report.
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Netflix
posted a surprise 5.89 million jump in subscribers in the June quarter, but the streaming video company’s shares were lower in late trading Wednesday as revenue fell short of the company’s forecast.
Management’s guidance for the third quarter likewise came in lower than anticipated.
In premarket trading, the stock was down 6.4%.
The gain in subscribers was well above both the 1.75 million added in the first quarter and the three million net new subscribers called for by Wall Street consensus forecasts.
The strong subscriber growth stems in large part from the company’s ongoing crackdown on password sharing. Netflix said it has rolled out the program in more than 100 countries covering 80% of its revenue base, with most of the remaining countries to be added to the program Wednesday.
Netflix also said subscriptions to the company’s ad-supported membership tier have nearly doubled since the first quarter, but noted that so far ad revenue isn’t material to the company’s financial results, a factor that may have disappointed some investors who were hoping for a quicker ramp of ad revenue.
For the quarter, Netflix reported revenue of $8.187 billion, up 2.7% from a year earlier, and slowing from 3.7% growth in the March quarter. The company had projected revenue of $8.24 billion, while the Wall Street consensus had been for $8.29 billion. Profit in the quarter was $3.29 a share, above the company’s forecast of $2.84 a share.
For the September quarter, the company sees revenue of $8.52 billion, up 7.5%, with profit of $3.52 a share, up from $3.10 a share a year ago. The company said net subscriber additions will be about in line with the second-quarter level. Street consensus estimates had called for $8.67 billion in revenue, profit of $3.23 a share, and an addition of a net four million paid subscribers.
Citi analyst Jason Bazinet points out in a research note that buy-side expectations for the September quarter were running at about seven million net adds—above the actual guidance.
Netflix expects revenue growth to accelerate in the fourth quarter, “as we further monetize account sharing…and steadily grow our advertising revenue.”
The company said it continues to expect full year 2023 operating margin of 18% to 20%. In the quarter, operating margin was 22%, up from 20%, aided by expense management, slower-than-projected head count growth and the timing of content spending. The company sees a third quarter operating margin of 22%, up from 19% a year earlier.
Netflix said it had $1.3. billon in free cash flow in the quarter, compared to a break-even quarter a year ago. The company now sees full year free cash flow of at least $5 billion, up from a previous forecast of at least $3.5 billion, reflecting reduced content spending due to the ongoing Hollywood actor and writer strikes. Netflix also expects to have “substantially positive” free cash flow in 2024.
The company notes that bought back $654 million of common stock in the quarter, and added it expects to accelerate stock buybacks in the second half.
Earlier Wednesday, Netflix confirmed that it was eliminating its $9.99 a month basic plan for new U.S. subscribers, who instead will have to choose from the $6.99-a-month ad-supported plan, and conventional plans at $15.49 and $19.99 a month.
Write to Eric J. Savitz at [email protected]
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