Earnings season is well under way, and streaming giant Netflix is the latest to report its Q2 results.
The company reported a big surge in users & added 10 million subscribers as people stayed home during the height of the pandemic, to be expected. However, Netflix’s shares dropped almost 9% after hours on guidance about slower subscriber growth in the future.
Another big news; Chief Content Officer Ted Sarandos is being promoted to Co-CEO with founder and current CEO Reed Hastings.
Here are the key numbers:
Revenue: $6.15 billion vs. $6.08 billion
Earnings per share (EPS): $1.59 vs. $1.81 expected (mainly due to a one-time charge in California related to research and development tax credits)
Global paid net subscriber additions: 10.09 million vs. 8.26 million expected
The pandemic gave Netflix the boost in global paid subscriber growth, increased engagement & the surge it needed to perform well this quarter. But with most tech companies that saw a boost during the pandemic, there’s often a slower quarter to come as cities and people resume back to their normal life. Netflix provided Q3 revenue guidance of $6.33 billion, below analyst estimates of $6.40 billion.
“Growth is slowing as consumers get through the initial shock of Covid and social restrictions,” said the company in a note to shareholders.
It’s important to note though, that Netflix’s growth in its home market; the US has slowed down for 18 months.
The rationale is, Americans who want Netflix most likely already have accounts, so its growth is mainly driven by international markets.
Racking up millions of new subscribers due to an unprecedented global pandemic is still impressive, but the company needs to work on how it can retain these subscribers, as well as plot for more international sign-ups even when things go back to normal.
Netflix said it does not expect its 2020 slate of content to be significantly impacted by production shutdowns created by the pandemic. current production setbacks will push more of its big titles to the end of 2021, and luckily production in Asia Pacific has picked back up. It also names US as a more challenging country to resume productions in.
What else is new? Netflix also changed the way it counts views last year, and now counts a view as a household watching at least two minutes of a show or movie. “Never Have I Ever,” the coming of age series by Mindy Kaling, saw 40 million households choosing to watch the show in its first four weeks.
Interestingly, Netflix included TikTok as one of its key competitors for this quarter.
TikTok’s growth is astounding, showing the fluidity of internet entertainment,” the company wrote to shareholders. The scope of entertainment is wide and varying, and the sheer size of the entertainment market means there’s enough eyeballs to go around, but then again, these players are all competing for one key thing; time and attention.