Netflix gains 5.89M subscribers despite password crackdown. In the second quarter of 2023, Netflix reported a significant increase in its paid subscriber base, adding 5.89 million new subscribers worldwide. This substantial growth outpaced analysts’ projections, who had estimated the streaming giant to gain only 1.769 million new subscribers during the same period. Notably, this quarter was marked by Netflix’s decision to notify customers in the U.S. and other countries that users living outside their households would need to be added as “extra members” or pay for their own subscriptions.
Impressive Global Subscriber Count: 238.39 Million Paid Subscribers
Netflix’s Q2 results revealed an outstanding achievement in subscriber growth, with the streaming platform reaching 238.39 million global subscribers, compared to 232.5 million in the previous quarter. This marked an 8% year-over-year increase in subscribers, surpassing Wall Street’s expectations. The company expressed optimism for Q3, anticipating similar paid net additions to Q2.
Password-Sharing Crackdown: Impact on Subscriptions
Netflix did not provide specific figures on how the password-sharing crackdown influenced subscriber gains. However, the company indicated that sign-ups for the paid-sharing program were already exceeding cancellations. The implementation of the “extra member” feature and the conversion of borrower households into full paying Netflix memberships contributed to the positive growth trend.
Understanding Average Revenue per User (ARPU)
Netflix emphasized that “extra member accounts are not included in our paid membership count but add revenue” that contributes to the average revenue per user (ARPU) or average revenue per member (ARM). This approach accounts for the added revenue from extra members, even though they are not directly included in the paid membership count.
Regional Breakdown of Subscriber Growth
Netflix’s subscriber growth was distributed across various regions. In the U.S. and Canada, paid memberships rose by 1.17 million, followed by Europe, the Middle East, and Africa with 2.43 million new subscribers. Latin America experienced an increase of 1.2 million paid memberships, and the Asia-Pacific region added 1.1 million new subscribers. Netflix gains 5.89M subscribers despite password crackdown.
Financial Performance: Revenue and Free Cash Flow
While Netflix reported a diluted EPS of $3.29 on $8.2 billion in revenue, marking a 2.7% year-over-year growth in revenue, it missed Wall Street’s revenue projection of $8.3 billion. As a result, Netflix shares dropped by over 6% in after-hours trading. The streaming platform achieved a profit of $1.5 billion in Q2, with operating income reaching $1.8 billion. The company’s free cash flow for the quarter amounted to $1.3 billion.
Future Projections: Free Cash Flow and Content Spending
For Q3, Netflix forecasts revenue of $8.5 billion and a net profit of $1.6 billion. The streaming giant has revised its projection for full-year 2023 free cash flow to at least $5 billion, an increase from the previous estimate of $3.5 billion. This revision is attributed to lower cash content spend for the year, partly influenced by production delays due to the ongoing WGA and SAG-AFTRA strikes. The company anticipates some “lumpiness” in free cash flow between 2023 and 2024 but aims to achieve substantial positive FCF in 2024, maintaining a 1:1 ratio of cash content spending to content amortization.
Elimination of Basic Plan and Focus on Ad-Supported Standard Plan
In an effort to bolster its ad-supported Standard With Ads plan, Netflix confirmed the elimination of its Basic plan, the cheapest streaming option without ads, in the U.S. and U.K. The company believes that the competitive starting prices of $6.99 in the U.S. and £4.99 in the U.K. for the Standard With Ads plan offer great value to consumers, considering the breadth and quality of its content catalog.
Analyst Interview and Future Prospects
Netflix executives are set to discuss the quarterly results in a pre-recorded analyst interview scheduled for release at 6 p.m. ET. As the streaming landscape continues to evolve, Netflix’s growth strategies and focus on content offerings are crucial factors that will shape its future prospects in the industry