Netflix It said on Wednesday that its quarterly revenue and subscriptions rose as it rolled out efforts to curb password sharing.
According to Refinitiv data, the company’s second-quarter report and analysts’ expectations were as follows:
- income: $3.29 per share vs. $2.86 per share expected
- income: $8.19 billion vs $8.3 billion expected
The streaming giant said it added 5.9 million customers in the second quarter amid a broader U.S. crackdown on password sharing. Netflix said it would roll out the new policy to other customers on Wednesday.
Shares of Netflix fell 8% in after-hours trading.
The company reported revenue of $8.19 billion, up 3% from $7.97 billion a year earlier. Net income rose to $1.49 billion from $1.44 billion a year earlier.
The earnings report comes as investors look for more information on the launch of Netflix’s ad-supported streaming tier and drive subscription growth by eradicating account sharing.
However, Netflix said it was too early to report a revenue breakdown for the ad-supported tier it rolled out late last year and account for the new password policy.
Netflix said Wednesday that it expects revenue to grow in the second half of the year as it begins to “see the full benefits of pay-sharing and steady growth in our ad-supported program.”
Netflix said it now expects third-quarter revenue of $8.5 billion, up 7% from a year earlier. It attributed the expected revenue growth to an increase in the number of average paying members.
The company also expects net paid user additions in the third quarter to be similar to the second quarter. Meanwhile, Netflix expects a “significant acceleration” in revenue growth in the fourth quarter as efforts to curb password sharing intensify and ad revenue grows.
In May, Netflix began alerting members to its policies that prevent the use of other people’s accounts. Subscribers can transfer their profile to someone outside the household so they can pay for their account, or members can pay an additional $7.99 per person.
According to a report by Antenna, the company saw an increase in user numbers in the weeks following the rollout of the sharing policy.
Netflix executives declined to provide specifics on the pay-to-share plans rolled out so far on Wednesday’s earnings call.
Co-CEO Greg Peters said Wednesday the company won’t see the full effects of the policy for several quarters.
“It didn’t happen overnight,” Peters said by phone. “Part of it is the gradual intervention, and part of it is that some borrowers don’t sign up for their accounts right away, they sign up for the next month, three months, six months and beyond as we launch games that they’re particularly interested in.”
Executives noted that password sharers who open their own accounts have similar characteristics to long-term customers, so companies expect High retention rate.
Netflix rolled out new sharing policies and ad tiers last year as part of a response to its first subscriber loss in more than a decade in 2022.
Shares of Netflix rose on the back of these moves. The company’s shares have risen more than 60% this year and hit a 52-week high in 2019. On Wednesday, the market was expecting growth for the current quarter.
The company said Wednesday it hopes the changes will help generate “more revenue on a larger basis,” adding that it hopes to use the additional funds to reinvest in the platform.
In May, Netflix said it was expanding its paid-to-share policy to more than 100 countries that account for more than 80% of its revenue.
“Cancellation response is low, and while we’re still in the early stages of monetization, we’re seeing a healthy transition of borrowing households to full-paying Netflix memberships,” Netflix said Wednesday, adding that it would address the issue in other countries where it’s available.
Meanwhile, media companies have turned more to ad-supported streaming as a way to turn a profit.
During its pitch to advertisers in May, Netflix revealed few details about its ad-support tier, though that was enough to drive up its stock price. The new tier has 5 million active users and 25% of new customers signed up for the tier in regions where it was available, the company said.
On Wednesday, Netflix confirmed it was killing its “basic” ad-free plan, making its standard plan with ads the cheapest option at $6.99 a month. The ad-free Standard and Premium tiers cost $15.49 and $19.99 per month, respectively.
The moves come as the media industry goes through one of the most turbulent times in a while.
Industry analysts have long suspected that the industry could consolidate, particularly through mergers and acquisitions.
On Wednesday, co-CEO Ted Sarandos said Netflix was looking at opportunities to buy intellectual property and build a library of content.
“Some of these assets are under pressure for a reason,” Sarandos said of potential media companies or assets for sale. “Our M&A activity is largely around intellectual property that we can develop into great content for our members. We’ve traditionally been a stronger builder than a buyer, and that hasn’t changed.”
Netflix is also grappling with the potential fallout from a strike by writers and actors in Hollywood.
Analysts expect Netflix to outperform other media companies during the shutdown due to its wealth of content, especially from international sources.
Netflix raised its 2023 free cash flow forecast to $5 billion because of the strike, up from a previous forecast of at least $3.5 billion due to lower content spending this year.
Sarandos said on Wednesday’s conference call that Netflix has a lot of fresh content brewing, but didn’t say how long it would last. still, He said the strike needed to come to a conclusion.
“We have a lot of work to do. There are some complex issues,” Sarandos said. “We are very committed to reaching an agreement as soon as possible, a fair agreement that allows the industry and everyone to move forward in the future.”
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