During its second quarter of the year earnings report, Netflix announced that it has added 5.9 million new paid subscribers, taking its total number to 238.4 million global paid memberships. This gain in subscribers is well above the 1.75 million added in the first quarter of the year and also the 3 million new net subscribers Wall Street analysts expected.
Financially speaking, the company reported 2.7% higher revenue compared to the year-ago period, although it missed estimates, despite new initiatives like the crackdown on password sharing, which rolled out in the United States in late May, along with the recently launched ad-supported tier. The streamer also guided to third-quarter revenue of US$8.52 billion, below expectations of US$8.67 billion. Shares dipped lower as a result, sinking as much as 5% in after-hours trading.
“While we have made steady progress this year, we have more work to do to reaccelerate our growth. We remain focused on: creating a steady drumbeat of must watch shows and movies, improving monetization, growing the enjoyment of our games, and investing to improve our service for members,” the company said in its letter to shareholders.
For the third quarter, Netflix forecasts revenue of US$8.5 billion, up 7% year-over-year on both a reported and F/X neutral basis, a slight acceleration from its Q2 2023 F/X neutral revenue growth rate of 6%. According to the streamer, its revenue growth in the third quarter will come from growth in average paid memberships.
“We anticipate Q3 2023 paid net adds will be similar to Q2 2023 paid net additions. We expect that our revenue growth will accelerate more substantially in Q4 2023 as we further monetize account sharing between households and steadily grow our advertising revenue,” the company added.
● CONTENT DEMAND
According to Parrot Analytics, when it comes to demand for original content, Netflix continues to lose ground to its competition. The streamer hit new lows in originals demand share in the United States and worldwide, while Apple TV+ made major strides this quarter. Netflix now accounts for barely over a third of the global demand for streaming original TV series, down from 55% in the second quarter of 2020. That said, Netflix’s share is still more than three times higher than that of its closest competitor.
Netflix leads the pack in on-platform demand share, which accounts for audience demand for all movies and TV series, both licensed and originals. However, its lead is shrinking due to Warner Bros. Discovery's Max relaunch incorporating Discovery+ content. With Disney’s platform consolidation on the horizon, Netflix’s position at the top of this category is in serious jeopardy, Parrot assures.
Complicating matters for not just Netflix but the entire industry will be the dual SAG-AFTRA and WGA strikes. The global demand for streaming original content rose by 21.6% in the first half of 2023, following a brief dip in the fourth quarter of 2022. Streamers and studios will tout their content runways, but this growing consumer demand trend is likely to reverse if they cannot come to terms with the writers and actors in time to produce new content in the coming months.
“Despite the inconsistency, Netflix is still Wall Street’s preferred media stock. Should the ad tier continue to grow and the password crackdown increase revenue, it will put the most profitable premium streamer in the industry in an even more advantageous position while rivals battle uncertainty,” Parrot Analytics concluded.
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