Netflix’s subscriber and earnings growth gather more momentum

Netflix’s subscriber and earnings growth accelerated in its latest quarter as the video streaming service benefits from a crackdown on freeloading viewers, an expansion into advertising and an acclaimed programming lineup.

The results announced Thursday painted a portrait of a company still gathering momentum after a jarring decrease in subscribers during the first half of 2022 prompted a change in direction.
Netflix added 8 million subscribers during the April-June period, marking a 37% increase over the same time last year. It was the sixth-consecutive quarter of that Netflix’s subscriber gains have increased from the previous year, a trend triggered by the 2022 downturn that served as a wake-up call for the Los Gatos, California, company.

The streaming giant reported EPS of $6.12, $0.53 better than the analyst estimate of $5.59. Revenue for the quarter came in at $26.04B versus the consensus estimate of $24.65B.

"Overall, this was a positive report for the streaming giant on several key metrics, despite the slight disappointment in future guidance for Q3," said Thomas Monteiro, senior analyst at Investing.com. "The better-than-expected figures in EPS growth and revenue show that the strategy of pushing users into the ad-tier business is just starting to pay off and still has a very high untapped potential."

"Amid a more competitive backdrop expected for Q3 and beyond, when Netflix's streaming peers are likely to find better macro conditions to pursue faster user growth, Netflix is betting on cashing in where the fat margins are," Monteiro explained. "On top of that, this strategy could potentially help the company benefit from a weaker US dollar as the Fed approaches its rate-cut cycle, given that it shows a very high potential for growth in markets outside of North America."

As part of a shakeup that began in mid-2022, Netflix has been blocking the previously widespread practice of sharing subscriber passwords with friends and family living in other households. It also introduced commercials for the first time as part of a low-priced version of its service.

Since those moves began rolling out two years ago, Netflix has picked up nearly 55 million more paying customers, pushing its worldwide subscriber count nearly 278 million through June.
But Netflix is bracing for the gains from the password-sharing crackdown to taper off, prodding the company to sharpen its focus on selling more ads for its low-priced option, which the company said ended June with a 34% increase in total subscribers from March. It didn’t detail precisely how many of its worldwide subscribers have chosen to watch ads for the cheaper price.

Despite the widening audience for commercials, Netflix said it doesn’t expect advertising to be a major source of revenue growth until 2026 at the earliest.

“Ads are going to be a bigger piece of the puzzle, but it won’t be in 2024 or 2025,” Spencer Neumann, Netflix’s chief financial officer, told analysts during a conference call Thursday.

Associated Press writer Michael Liedtke in San Francisco contributed to this report