Netflix adds more subscribers than expected, misses on revenue estimates
Netflix's stock slipped roughly 5% in after-hours trading Wednesday after the company said it missed Wall Street revenue expectations, despite adding more subscribers than expected for the second quarter.
Why it matters: Beating expectations for paid subscriber additions suggests Netflix's new crackdown on password sharing in the U.S., and the rollout of its ad-supported tier, are paying off.
Between the lines: Earlier on Wednesday, the streamer announced it will kill its cheapest no-ad subscription tier in the U.S. and the U.K.
- Ad-supported tiers are often more profitable for streaming companies because they have the potential to drive even more average revenue per user than tiers without ads.
Details: Despite missing revenue expectations, Netflix still grew its top line by 3% year over year last quarter, in part due to gaining more subscribers.
- The entertainment giant added 5.9 million subscribers last quarter, versus the 2.1 million additions expected.
- In a note to investors, Netflix said it expects its revenue growth to increase in the back half of the year, once the benefits of its new paid-sharing account program and its ad-supported tier begin to pay off.
- It also said its ads plan membership "nearly doubled" since the first quarter, but "it’s still off a small membership base, so current ad revenue isn’t material for Netflix."
By the numbers, via CNBC:
- Earnings: $3.29 a share. That may not compare with the $2.86 per share expected by Refinitiv.
- Revenue: $8.19 billion. That may not compare with the $8.30 billion expected by Refinitiv.
The big picture: Netflix's earnings come at a critical time for the entertainment industry.
- The simultaneous writers and actors strikes are expected to shut down most Hollywood productions for the foreseeable future.
- A bleak ad market continues to dog streamers looking to please Wall Street with stronger profitability margins.
- Netflix said it increased its free cash flow expectations for the year by $1.5 billion, citing lower spending on content as a result of the ongoing strikes.
What to watch: Because it reports earnings early, Netflix's results typically serve as a bellwether for the rest of the entertainment industry.
Go deeper ... Netflix's earnings over the past year:
Editor's note: This article has been corrected to reflect that Netflix's stock slipped in after-hours trading today (not Thursday).