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Netflix reported adding over 8 million subscribers in the second quarter, surpassing analyst predictions of 5 million. This growth was driven by a crackdown on password sharing and the popularity of titles like “Bridgerton,” “Baby Reindeer,” and “The Roast of Tom Brady.”
Cautious Guidance and Advertising Business:
Despite the impressive subscriber gains, Netflix issued cautious guidance for the third quarter. The company also stated that its advertising business would not become a major revenue driver until at least 2026. Netflix shares rose by 1% in after-hours trading following the report, with the stock surging nearly a third this year.
Michael Ashley Schulman, CIO at Running Point Capital, noted that while Netflix remains highly profitable, some investors might take profits now, anticipating a better re-entry point for the stock given recent technology stock retreats.
Shift in Reporting and Advertising Business:
Netflix plans to stop regularly reporting new subscriber additions next year and instead focus on its emerging advertising business as a potential growth area. However, third-quarter subscriber gains are expected to be lower than in the comparable period in 2023, partly due to the recent password crackdown.
Leadership Changes and Market Competition:
The company announced the departure of its vice president of ad sales, Peter Naylor. Analysts like Jamie Lumley from Third Bridge highlighted that while Netflix’s advertising business has potential, it still lags behind competitors like Amazon in significantly impacting the ad market.
For the April through June period, Netflix reported diluted per-share earnings of $4.88, exceeding consensus forecasts of $4.74 a share, and revenue of $9.56 billion, aligning with estimates. The new sign-ups brought Netflix’s global subscriber count to over 277 million by the end of June.
Netflix’s ad tier membership grew by 34% from the previous quarter. The company emphasized that it will take time to become a major revenue contributor while its ad business grows, projecting a more substantial impact by 2026.
Future Revenue Growth and Content Expansion:
Netflix anticipates a 14% revenue growth in the third quarter compared to the previous year. The company continues to expand its content offerings, planning to release a multiplayer game based on “Squid Game” alongside Season Two of the series, as well as games tied to “Emily in Paris” and “Selling Sunset.”
