- Netflix added 5.9 million subscribers in the quarter and forecast similar growth for the next quarter.
- The company barely mentions its fledgling video game business in its shareholder announcement.
- Netflix increased its annual free cash flow estimate to $5 billion.
LOS ANGELES, CALIFORNIA – JUNE 12: Netflix CEO Ted Sarandos attends Netflix’s Squid Game FYSEE Event at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charley Gallay/Getty Images for Netflix)
Charley Gallay | Getty Images Entertainment | Getty Images
The key takeaway from Netflix’s second-quarter earnings is that business is… doing well.
That’s right. The basic business of a major media and entertainment company is fine.
Netflix added 5.9 million subscribers in the quarter, a sign that its two key initiatives for 2023 — fighting password sharing and introducing a cheaper $6.99-per-month advertising tier — are gaining new subscribers. Netflix added 1.2 million subscribers in the U.S. and Canada during the quarter — the largest regional quarterly gain since 2021.
This does not apply to the rest of the media industry. Disney and Warner Bros. Discovery have spent the year trimming the content on their streaming services to avoid paying back payments and saving on royalties. Both companies have laid off thousands of employees over the past 12 months to boost free cash flow. Comcast’s Paramount Global and NBCUniversal both said 2023 will be the biggest annual loss ever for their streaming businesses.
Meanwhile, Netflix raised its free cash flow estimate for the year to $5 billion. The company previously estimated it would have $3.5 billion, but the actors’ and writers’ strikes will reduce content spending. That means Netflix will actually have even more cash than previously anticipated.
For the next quarter, Netflix is forecasting subscriber growth of around 6 million again. The company said revenue will accelerate in the second half of the year as it sees “the full benefits” of its crackdown on password sharing and the steady growth of its ad-supported plan.
Last year, Netflix’s valuation fell 60% as streaming subscriber growth stalled. The company spent a lot of time on earnings calls, focusing on and explaining its new video game business, which launched in mid-2021 to start a new growth story.
This quarter’s letter to shareholders has little to do with video games.
Why? Because unlike the rest of the media industry, Netflix doesn’t need a new narrative. The old one still works. Streaming is growing. Cash holdings are increasing. Advertising excites investors. Netflix has a steady pipeline of international content and an extensive library to weather an extended writer and cast strike.
“The lack of references to video games in the letter to shareholders suggests that advertising is the shiny object the company is most focused on,” said Ross Benes, an analyst at research firm Insider Intelligence.
Netflix shares fell 5% in after-hours trading. That’s more a symptom of profit-taking after Netflix’s big gains this year (up more than 62% at Wednesday’s close) than anything to fret about in its first-quarter results.
After a precipitous fall last year, the company is back on track. And it wasn’t even necessary to change trains.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
– CNBC’s Lillian Rizzo contributed to this article.