The streaming colossus announced on Wednesday that it gained nearly six million paid subscribers during the three-month period ending in June, bringing its global total to over 238 million.
Paid sharing, the company’s effort to persuade users to cease sharing accounts for free, is now available in more than 100 countries, having begun its global expansion this year. Netflix reported that revenue in these regions is now greater than it was before the launch of the service, and that “sign-ups are already exceeding cancellations.”
During the second quarter earnings call, Netflix’s chief financial officer, Spencer Neumann, referred to the introduction of paid sharing as the company’s “primary revenue accelerator in the year.”
“The majority of our revenue growth this year is due to an increase in the number of paid memberships, which is largely the result of our paid sharing rollout,” he said.
The results come at a pivotal time for Netflix, as the streaming service seeks to increase revenue by restricting password sharing and introducing an ad-supported subscription option, while also facing a new challenge: strikes by Hollywood actors and writers unions that could affect its future slate of original television shows and films.
Netflix Misses Revenue Expectations: Stock Plummets in After-Hours Trading
According to analyst consensus data provided by Refinitiv, Wall Street analysts expected Netflix to generate $2.86 in earnings per share on $8.3 billion in revenue. Netflix reported diluted earnings per share of $3.29 on $8.2 billion in revenue, representing a 2.7% increase in revenue year-over-year. In after-hours trading, Netflix’s stock fell more than 6% due to the revenue shortfall.
The streaming service reported a profit of $1.5 billion and operating income of $1.8 billion for the second quarter. The quarterly free cash flow was $1,3 billion. Netflix anticipates revenue of $8.5 billion and a total profit of $1.6 billion for the third quarter.
Netflix increased its free cash flow forecast for the full year of 2023 from $3.5 billion to at least $5 billion. Due to the sequencing of production start dates and the ongoing WGA and SAG-AFTRA strikes, the company’s cash content expenditure estimates for the year have been revised upward. According to the company, this may result in “lumpiness” in free cash flow from 2023 to 2024, but “we plan to deliver substantial positive FCF in 2024” with a 1:1 ratio of cash content expenditure to content amortization.
Earlier on Wednesday, Netflix confirmed that it is discontinuing its Basic plan, its cheapest streaming plan without advertisements, in the U.S. and U.K., in an effort to increase subscribers to the ad-supported Standard With Ads plan, which the company first introduced in November. In May, Netflix announced that it had acquired more than 5 million subscribers for its ad-supported plans, with 25 percent of new subscribers opting for the subscription.
“Our starting prices of $6.99 in the U.S. and £4.99 in the U.K. [for Standard With Ads] are lower than the competition and provide a great value to consumers given the breadth and quality of our catalog,” a Netflix representative told Variety.
During a pre-recorded analyst interview scheduled to go live at 6 p.m. ET, Netflix executives will discuss the quarter in greater detail.
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