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Earlier last week Netflix (Nasdaq: NFLX) reported a mixed bag second quarter performance. The company continues to drive revenue through improved monetization practices globally.
 

Netflix’s Financials

Netflix’s Q2 revenues grew 3% to $8.2 billion, falling short of the Street’s forecast of $8.3 billion. EPS was $3.29, ahead of the market’s forecast of $2.86.

During the quarter, it added 5.9 million subscribers, despite the crackdown on password sharing in the United States. Netflix now has over 238.39 million paid subscribers worldwide, up 8% over the year.

For North America, Q2 revenue was $3.6 billion with paid memberships of 75.57 million. It added 1.17 million new customers in the US and Canadian markets. Revenue from Europe, Middle East, and Africa was $2.6 billion from 79.81 million paying customers, with a net addition of 2.43 million subscribers. Latin America's revenue was $1.08 billion from 42.47 million paid members, with a net addition of 1.2 million subscribers. Asia-Pacific revenue was $919 million from 40.55 million subscribers, with 1.07 million new subscribers.

For the third quarter, Netflix forecast revenue of $8.5 billion and an EPS of $3.52. The market was looking for revenues of $8.53 billion for the quarter and an EPS of $3.49.
 

Netflix’s Monetization Drive

During the quarter, Netflix continued to improve its monetization capabilities through initiatives like paid sharing and advertising. Netflix continued to improve its ad-supported offering by partnering with Nielsen and EDO to improve measurement and innovation for advertisers. Brands can now target media buys on their Top 10 listing, which is updated daily and enables them to connect with audiences during the biggest viewing moments.

Netflix did not share the revenues from ad-based tiers, but it mentioned that its ads plan membership has nearly doubled since Q1. The base though remains small, and it claimed that its revenue was still not material for Netflix. Netflix is hopeful that it will be able to develop advertising into a multi-billion dollar incremental revenue stream over a period of time.

It is also driving monetization by increasing sophistication on pricing and plan strategy. During the first quarter of the year, Netflix lowered prices in some of its less penetrated markets. In the last quarter, it phased out its Basic ads-free plan for new and rejoining members in Canada and is now doing that in the US and the UK. It continues to address account sharing between households and expanded its paid sharing plan to 100+ countries, accounting for over 80% of its revenue. As of now, the cancel reaction has been low, and Netflix is seeing a healthy conversion of borrower households into full-paying Netflix memberships. It also announced plans to crack down on the account-sharing capability in almost all of its remaining countries. In some of these countries, like Indonesia, Croatia, Kenya, and India, it will not offer the extra member option given that it has recently reduced subscription prices and penetration is still relatively low.

According to a Nielsen report, streaming content providers accounted for 38% of screen time viewership in the US in June this year compared with 26% two years ago. Netflix’s share in this pie has grown from 6% in May 2021 to 8.2% as of June 2023 and it is now the second biggest content provider after YouTube’s 8.8% share. Competition has grown significantly in the market as well with a slew of new entrants including cable TV providers who have launched their streaming services. Netflix remains hopeful that its content build-up coupled with its smart pricing strategy will help it penetrate deeper into the market.

Netflix’s stock is trading at $428.37 with a market capitalization of $190.4 billion. It hit a 52-week high of $485.00 in June. The stock had fallen to a year low of $211.64 in July last year.

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