Netflix Q2 2024 Earnings
Posted:
Netflix Gains 8 Million New Subscribers but Revenue Outlook Disappoints
Netflix for second quarter reported revenue reached $9.56 billion in Q2, a 16.8% increase from the same period last year. This growth was driven by Netflix's focus on top-line initiatives, including its crackdown on password sharing, the introduction of an ad-supported tier, and last year's price hikes on certain subscription plans.
Furthermore, the streaming giant reported a net income of $2.15 billion, or $4.88 per share, an increase from $1.49 billion, or $3.29 per share, in the second quarter of 2023.
Netflix reported a Q2 operating margin of 27% vs. 22% same period last year.
The gains were fueled by Netflix adding over 8 million paying subscribers in the quarter, bringing the total to 277.65 million global streaming paid memberships. Netflix announced last quarter that it will cease reporting subscriber numbers and average revenue per member starting in the first quarter of 2025.
Moreover, the company reported that its ad-supported memberships grew by 34% quarter over quarter, accounting for 45% of all new sign-ups in markets where the plan is available. Netflix’s global paid memberships rose by 16.5% year over year to 278 million. This is one of the final updates Netflix will provide regarding its membership numbers.
In response to a slowdown in subscriber growth in 2022, Netflix has adopted new business strategies to boost revenue. In May, the company announced it would develop its own ad platform, ending its partnership with Microsoft for that technology. Netflix is also adding live sports to its offerings, including NFL games on Christmas Day for the next three years, aiming to attract more advertising revenue.
“We're into live TV because our members love it, it generates significant engagement and excitement ... and advertisers appreciate it for the same reasons,” said Netflix co-CEO Ted Sarandos during Thursday’s earnings call.
In a press release on 18th July Netflix stated, "Our ad revenue is growing nicely and is becoming a more meaningful contributor to our business." However, the company noted that it doesn't expect advertising to be a "primary driver of our revenue growth in 2024 or 2025."
Despite this, Netflix is heavily investing in ads. It highlighted that it closed over 60 pause ad campaigns—ads that appear when a program is paused—with major brands such as Expedia, Coca-Cola, Ford, L’Oréal, and McDonald’s. During the 18th July earnings call, Netflix co-CEO Greg Peters mentioned that the company has primarily been concentrating on growing its ad-supported subscriber base. Netflix also plans to test an in-house ad tech platform in Canada this year, with a wider launch scheduled for 2025.
As Netflix enhances its advertising operations, it is providing "advertisers more effective ways to buy ... a major piece of feedback we received from advertisers," Peters said on Thursday.
"The short-term challenge (and medium-term opportunity) is that we’re expanding faster than we can monetise our growing ad inventory," Netflix stated in its earnings release, indicating that they are currently unable to meet advertiser demand.
Additionally, Netflix is testing a new TV homepage design aimed at being more intuitive and increasing the visibility of titles, synopses, genres, and ratings. This move follows reports that Disney is trying to make its streaming platform more similar to Netflix's.
On 17th July, Netflix received 107 Emmy nominations, the most of any network or streamer.
Forecast:
For Q3 2024 Netflix anticipates revenue growth of 14% year over year (YoY). The streaming giant expects paid net additions to be lower than in Q3 2023, which saw the first full quarter impact from paid sharing. Similar to recent quarters, the company anticipates global average revenue per member (ARM) on a reported basis to remain roughly flat year over year in Q3, due to ongoing foreign exchange headwinds and variations in plans and country mix.
For Full year 2024, Netflix expects revenue growth of 14% to 15%, an increase from the previous projection of 13% to 15%. Additionally, the company has revised its 2024 operating margin estimate to 26%, up from the prior estimate of 25%, due to the improved revenue outlook and continued expense discipline.
Netflix after reporting its second-quarter earnings on 18th July, initially caused a 6% drop in its stock during after-hours trading due to a soft earnings outlook. However, shares rebounded during the earnings call and stood at 0.18% down.
Sources:
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