LOS ANGELES, CALIFORNIA – JUNE 12: Netflix CEO Ted Sarandos attends Netflix’s FYSEE event for “Squid Game” at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charlie Gale/Getty Images for Netflix)
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Main road from NetflixThe second quarter earnings business is … good.
it’s fine. The core business of a major media and entertainment company is just fine.
Netflix added 5.9 million subscribers in the quarter, a sign that two of its key 2023 initiatives — cracking down on password sharing and launching a cheaper $6.99 per month ad tier — are bringing in new subscribers. Netflix added 1.2 million subscribers in the United States and Canada in the quarter — its biggest regional quarterly gain since 2021.
This is not the story of the rest of the media industry. Disney And Warner Bros. Discovery It has spent the year cutting content from its streaming services to avoid paying arrears and save on licensing fees. Both companies have laid off thousands of employees over the past 12 months to boost free cash flow. Paramount Global And ComcastBoth of NBCUniversal said 2023 would be the biggest annual loss ever for their streaming business.
Meanwhile, Netflix raised its free cash flow estimate for the year to $5 billion. Previously, the company had estimated it would have $3.5 billion, but actor and writer strikes would cut into content spending. That means Netflix will have more cash on hand than previously expected.
In the next quarter, Netflix’s forecast subscriber benefits will be about 6 million again. The company said revenue will accelerate in the second half of the year as it sees the “full benefits” of its password-sharing crackdown and steady growth in its ad-supported plan.
Back on track
Last year, Netflix’s value fell 60% as streaming subscriber growth stalled. The company spent a lot of time on the earnings conference calls focusing on and explaining its new video game business, which is introduced in Mid-2021, to help usher in a new growth narrative.
This quarter’s shareholder letter barely even addresses video games.
Why? Because unlike the rest of the media industry, Netflix doesn’t need a new narrative. The old one still works. Streaming is growing. Cash piles are growing. The ads have excited investors. Netflix has a steady pipeline of international content and a deep library of writers and actors to season the extended strike.
“The lack of reference to video games in its shareholder letter suggests that advertising is a shiny new focus for the company,” said Ross Benz, an analyst at research firm Insider Intelligence.
Shares of Netflix fell 5% after hours. That’s a sign of profit-taking after Netflix’s big gains this year (up 62% through Wednesday’s close) more than anything to be upset about its early quarterly numbers.
After a sharp decline last year, the company is back on track. And he didn’t even have to change trains.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
— CNBC’s Lillian Rizzo contributed to this article.