Netflix surprises on subscriber growth: ‘they’ve executed the playbook perfectly’

Netflix Inc (NASDAQ: NFLX) says subscriber growth topped expectations by a massive margin in the second quarter. Its shares are still down 5.0% in extended trading.

Netflix shares down on revenue outlook

The stock is primarily responding to the revenue guidance that came in shy of Street estimates.

Netflix forecasts $8.52 billion in revenue in its third financial quarter. In comparison, analysts were at $8.66 billion. Still, Alex Kantrowitz of Big Technology said on CNBC’s “Closing Bell”:

On the earnings front, the streaming giant sees $3.52 a share in Q3 – better than $3.23 per share expected.

Netflix beats the Street in subscriber growth

Netflix added a whopping 5.9 million subscribers in its recently concluded quarter. Experts had forecast 1.82 million additions only. According to Kantrowitz:

The mass media behemoth said its ad-supported tier has accumulated over 5.0 million subscribers so far. It also confirmed plans of extending paid sharing to the remaining countries following its success in more than 100 countries already.

More importantly, the California-based company said it will add a similar number of paid net subscribers in its current quarter as it did in Q2. Year-to-date, Netflix shares are up over 50% at writing.

Notable figures in Netflix Q2 earnings report

• Earned $1.49 billion versus the year-ago $1.44 billion
• Per-share earnings also climbed from $3.20 to $3.29
• Revenue increased 2.7% year-on-year to $8.19 billion
• Consensus was $2.85 a share on $8.29 billion revenue
• Free cash flow jumped to a jaw dropping $1.3 billion

In a letter to shareholders today, Netflix attributed the second-quarter strength to its ad-tier and password sharing. Kantrowitz added:

Netflix lifts its guidance for free cash flow

The Nasdaq-listed firm also raised its outlook for full-year free cash flow to $5.0 billion as it expects to spend less on content in 2023 – partly because the Hollywood is currently on strike.

On Wednesday, Netflix scrapped its basic streaming plan in the United States as well as the United Kingdom to drive more users to the ad-tier.

Wall Street currently has a consensus “overweight” rating on Netflix shares.