Netflix loses 970,000 subscribers but quarterly profit jumps

World’s largest streaming service reports net profit of more than $1.4bn in second quarter

Netflix earned revenue of more than $7.9bn in the second quarter, up almost 8.5 per cent on an annual basis. AP
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Netflix reported a 6.5 per cent year-on-year increase in second-quarter net profit despite losing 970,000 paid subscribers between April and June.

The number of paid subscribers dropped to nearly 220.67 million in the three months to June 30, the biggest decrease in more than a decade.

The results were better than Netflix’s April announcement when the company warned investors it expected to shed about two million subscribers in the quarter.

It was the second consecutive quarter the streaming service reported a loss of paid subscribers. The company lost nearly 200,000 subscribers during the first quarter.

“We are talking about losing 1 million instead of losing 2 million. So, our excitement is tempered by the less bad results ... but looking forward, streaming is working everywhere,” Netflix chief executive Reed Hastings said during the earnings conference call.

“It's definitely the end of linear TV over the next five, 10 years, so very bullish on streaming. And then our core drivers are just continuing to improve … we are set up very well for the next year.”

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Following the earnings announcement, the company’s stock surged 8.4 per cent to $218.50 a share in the after-hours trading. The company’s shares have dropped more than 66 per cent since the start of the year.

The world’s largest streaming service reported a net profit of more than $1.4 billion in the second quarter. It was almost 10 per cent down on a quarterly basis.

The company earned a revenue of more than $7.9bn during the quarter, up almost 8.6 per cent on an annual basis, falling slightly short of analysts' estimate of more than $8bn.

Earnings for each share surged to $3.20, exceeding Refinitiv’s estimate of $2.90.

The fourth season of 'Stranger Things' generated 1.3 billion hours viewed in its first four weeks. AP

The second quarter was “better than expected” on membership growth, the company said in a statement to its stakeholders.

“Our challenge and opportunity [are] to accelerate our revenue and membership growth by continuing to improve our product, content and marketing … and to better monetise our big audience.”

The company said it was finally aiming to launch its with lower-cost advertisement-supported packages early next year. It will complement Netflix’s existing plans, which will remain ad-free.

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“It makes sense now to give consumers a choice for a lower-priced option with advertisements, if they desire it,” it said.

Last week, Netflix announced Microsoft as its technology and sales partner on the ad-supporting offering.

The video-streaming platform also indicated in its shareholder letter that a global crackdown on password-sharing is on its way.

The company said it is in the early stages of working to make money from more than 100 million households that are enjoying but not directly paying for Netflix.

It aims to find an “easy-to-use paid sharing offering” that will be introduced next year.

Netflix said its slowing revenue growth is the result of connected TV adoption, account sharing, competition and other factors such as sluggish economic growth and the effects of the Russian war in Ukraine.

“We’ve now had more time to understand these issues, as well as how best to address them … we strive for an ever better content, marketing and product experience.”

In its earnings guidance, Netflix expects its third-quarter net profit to drop 33.6 per cent annually to $961m. It expects total sales to rise 4.7 per cent annually to $7.8bn.

After two quarters of drop, it predicts its paid subscribers to increase by 1 million to reach 221.67 million by the end of October quarter.

Over the years, Netflix’s reputation has been built on huge hits, including Squid Game and Stranger Things.

The second quarter saw the fourth season of Stranger Things, which generated 1.3 billion hours viewed in its first four weeks.

Other English language series hits in the last quarter include season three of The Umbrella Academy (284 million view hours) and season one of The Lincoln Lawyer, a legal drama, which generated 277 million hours viewed and has been renewed for a second season.

Netflix said it was building on its “lead in non-English programming” to attract more subscribers.

“We want Netflix to be relevant to audiences all over the globe and our local language titles are a differentiator for us," the company said.

"We focus first on telling authentic stories for local impact but we see that great stories can travel everywhere."

Net cash generated by operating activities in the second quarter stood at more than $103m, while free cashflow in the quarter was more than $13m.

The company said it expected annual positive free cashflow due to “increasing revenue, solid profitability and the successful multi-year evolution of our content model".

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Updated: July 20, 2022, 7:18 AM
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