Netflix destroyed Wall Street estimates as its crackdown on password sharing helped the company register a 5.9m increase in paid net adds in the second quarter.
The number was more than double what analysts had forecast and resulted in 238.4m global membership following an 8% year-on-year gain. The streamer expects paid net adds for the upcoming quarter to be similar to Q2.
The company’s revenue for the quarter was $8.16bn, roughly where analysts thought it would be, marking a 2.7% year-on-year growth.
Operating income climbed 16% against Q2 2022 to $1.8bn. Net income or profit was $1.5bn. Operating margin was at 22.3% and earnings per share was $3.29.
Paid sharing clampdown
“We are revenue and paid membership positive vs. prior to the launch of paid sharing across every region in our latest launch,” Netflix said in its letter to shareholders.
The streamer launched paid sharing in May in more than 100 countries, which it said account for more than 80% of the company’s revenue, and said revenue was up in each region with sign-ups exceeding cancellations.
“The cancel reaction was low and while we’re still in the early stages of monetization, we’re seeing healthy conversion of borrower households into full paying Netflix memberships as well as the uptake of our extra member feature,” the company added.
Netflix rolls out paid sharing in “almost all of the remaining countries” today (July 19). In these markets the streamer is not offering an extra member option because it recently cut prices in a number of countries like Indonesia, Croatia, Kenya, and India and said penetration is still relatively low in many of these regions.
Households borrowing Netflix will be able to transfer existing profiles to new and existing accounts.
“Now that we’ve launched paid sharing broadly, we have increased confidence in our financial outlook,” the company told shareholders. “We expect revenue growth will accelerate in the second half of 2023 as monetization grows from our most recent paid sharing launch and we expand our initiative across nearly all remaining countries plus the continued steady growth in our ad-supported plan.”
Netflix phased out its Basic ads-free tier for new and rejoining members in Canada (existing members on that plan are unaffected) and has just done the same in the US and UK.
The company forecasts $8.5bn in revenue for Q3 and expects that growth to come from increasing average paid memberships. It said it “generally [hasn’t] had price increases in our largest revenue markets since the first half of last year” and added that revenue from advertising and the extra member feature “are not yet material enough to offset these factors”.
Q3 operating income is forecast to be $1.9bn, and the company said it was still targeting a full year 2023 operating margin in the 18%-20% range.
Revenue in Q4 is anticipated to accelerate “more substantially” as paid sharing and advertising revenue increase.
Programming highlights
Netflix also trumpeted its range of content, which it views as a key subscriber retainer. Satirical dramedy Beef starring Ali Wong and Steven Yeun and dating show Love Is Blind S.4 were in the Netflix top 10 throughout April, while May highlights included thriller series The Night Agent and Queen Charlotte: A Bridgerton Story.
Popular series outside the US include Physical 100 and The Glory in South Korea; Marked Heart in Colombia, Alice In Borderland in Japan; The Snow Girl in Spain and Que Viva Mexico! in Mexico; as well as films like Hunger in Thailand and AKA in France.
The Q2 film highlights were Jennifer Aniston and Adam Sandler in Murder Mystery 2 on 114.3m views in the first three months (views are based on views in the first 91 days of release); Jennifer Lopez thriller The Mother, which ranks ninth in Netflix’s top 10 all-time list on 131.6m views; and Chris Hemsworth back in action sequel Extraction 2, which attained 116.7m views in 31 days.
Regional performance
By region North America generated $3.59bn in revenue and has been roughly the same over the last five quarters. Membership grew on Q1 by 1.17m paid net adds to 75.57m and $16 average revenue per membership was roughly the same as the year-ago number.
In Europe, the Middle East and Africa revenue reached $2.56bn after a 4% year-on-year gain. Paid net adds climbed 2.43m to 79.81m. The $10.87 average revenue per membership fell 2.7% on the year-ago period.
Latin America generated $1.08bn in revenue, down by 4.5% year-on-year. Paid net adds of 1.22m elevated the subscriber number to 42.47. The $8.58 average revenue per membership fell 1% against last year’s second quarter.
Asia Pacific generated $919m, up a fraction on the year-ago period, while 1.07m net adds boosted the count to 40.55. Average revenue per membership of $7.66m marked a 13.3% drop year-on-year.
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