Netflix Inc (NASDAQ:NFLX) shares continued to stay in the green on Wednesday after its second quarter 2022 results showcased a better-than-expected loss of 970,000 subscribers versus the two million figure estimated by Wall Street analysts.
Shares of the streaming company were up over 3.3% in midday trading at around US$208 in New York.
Revenue for the three-month period to end June 30, 2022 came in at US$7.97 billion, slightly lower than analyst estimates of $8.04 billion, but earnings per share beat expectations at US$3.20 compared to the $2.96 consensus on the street.
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In a letter to shareholders, Netflix – still the world's leading streaming entertainment service – noted 9% revenue growth year over year.
"Last quarter, we discussed our slowing revenue growth, which we believe is the result of connected TV adoption, account sharing, competition, and macro factors such as sluggish economic growth and the impacts of the war in Ukraine. We’ve now had more time to understand these issues, as well as how best to address them," the company wrote in a letter to shareholders.
The company forecasts paid net additions for 3Q of more than one million, versus 4.4 million in the year ago quarter. It continues to expect its full year 2022 operating margin to be between 19 and 20%.
Subscriber loss less than feared
Reacting to the 2Q results, CMC Markets analyst Michael Hewson wrote that a loss of 970,000 subscribers was "much less than feared," with the new series of Stranger Things helping to mitigate losses.
"Against such a low bar, and with the shares back at 2017 levels there is perhaps a recognition that the business is in much better shape relative to its valuation of five years ago," Hewson wrote in a note.
"This is disappointing but also not altogether surprising given the strength of the US dollar which is costing Netflix dear. With Netflix producing films and TV in more than 50 countries, and three out of its six most popular TV seasons using non-English language titles, it seems odd that the company doesn’t have some mechanism to mitigate this FX exposure."
Hewson noted that Netflix peers Disney and Paramount Global have also edged higher, as attention turns to the subscriber numbers.
Subscriber growth slows
Netflix's quarterly subscriber growth rate has slowed sharply in recent years, going from 21.9% in full year 2020 to just 8.9% a year later in full year 2021. The latest quarterly increase of 5.5% is the lowest in four years.
According to Bloomberg, inflation is limiting consumers’ home entertainment budgets, the supply chain crisis has hurt smart TV sales, and there is high competition among streaming entertainment services, such as Apple TV, Disney+, Amazon’s Prime Video and HBO Max.
However, in partnership with Microsoft, Netflix plans to launch a lower price version of its platform, complete with advertising, partly in an attempt to take some of the financial burden off subscribers. To cut costs, the company also laid off 150 employees in May and another 300 in June.
Netflix still is the world's leading streaming entertainment service with 222 million paid memberships in over 190 countries who watch TV series, documentaries and feature films across a wide variety of genres and languages.
The company recently announced it is launching a feature called Add a Home, in which subscribers will pay an extra fee if they wish to share their Netflix password. A similar service has been on trial in Chile, Costa Rica and Peru since March.
--Updates Wednesday with share price, analyst comment--
Contact Susie at susie@proactiveinvestors.com