What you need to know about Netflix Q2 2023 earning result

The streamer's revenue rose by 2.7% compared to the year-ago period but came in at $8.19 billion versus the expected $8.30 billion. Additionally, Netflix guided third-quarter revenue of $8.52 billion, below expectations of $8.67 billion.

As the streaming landscape becomes increasingly competitive, Netflix continues to look for ways to trim costs and boost engagement. While the company's subscriber growth remains strong, its struggle to meet revenue expectations highlights the challenges of navigating this dynamic market.

Netflix reported strong Q2 subscriber growth with the addition of 5.9 million customers for the period, bringing its global paid memberships to 238.4 million.

The result marked an 8% YoY increase and the best second quarter since the pandemic began. Initiatives such as cracking down on password sharing and launching a cheaper ad-supported tier at $6.99 per month have helped attract new subscribers.

Netflix has credited its crackdown on password sharing for its 5.9 million subscriber gain in Q2, exceeding expectations of 2.07 million new subscribers. The company initially anticipated an increase in cancellations but said new sign-ups are already outpacing cancellations. It expects Q3 growth to be 7.5%.

In May, Netflix began notifying members about the policy and offering the option to either transfer a profile to someone outside their household or pay an additional fee. The company plans to roll out paid sharing to almost all remaining countries.

While YoY revenue grew by 3%, average revenue per membership declined 3% due to limited price increases over the past 12 months, timing of paid net additions, and higher growth from lower ARM countries.

Netflix confirmed the removal of its basic ad-free plan, making its standard plan with ads the cheapest option at $6.99 per month. The premium and standard tiers without commercials cost $19.99 and $15.49, respectively.

The shift is aimed at driving growth in Netflix's ad-supported tier, which offers lower-priced monthly subscriptions. The platform has nearly 5 million global monthly active users on this plan, according to the company.

The streamer touted strong momentum for its push into advertising, claiming nearly doubling of subscribers on its ad-supported tier in Q2 2023. However, advertising revenue in Q2 was still not significant in the context of its overall business, according to the company.

Netflix executives have addressed the current double strike in Hollywood, with Co-CEO Ted Sarandos expressing the company's commitment to reaching a deal with actors and writers as quickly as possible. The strike was announced by SAG-AFTRA, which represents approximately 160,000 media professionals globally.

Wedbush analyst Michael Pachter suggests that Netflix's strong presence overseas, broad content offering, and profitable balance sheet give it an advantage during the Hollywood strikes. The company has also raised its full-year outlook for free cash flow by $1.5 billion to $5 billion, indicating confidence in its ability to weather the storm.

Netflix's international footprint and non-English language programming, including shows like "Physical: 100" and films like "Hunger," have also helped insulate the company from any negative effects of the strikes.

Netflix forecasts revenue of $8.52 billion compared to estimates of $8.68 billion. The company expects earnings of $3.52 per share versus estimates of $3.24 per share.

Netflix cites lower cash content spend in 2023 and ongoing Hollywood strikes for the updated projection. However, the company anticipates revenue growth will accelerate in H2 2023 through its paid sharing initiative and ad-supported plan, which it plans to expand across almost all remaining countries.

Despite expecting paid net subscriber additions in Q3 to be similar to Q2, Netflix projects a boost in revenue growth in H2 2023 due to the benefits of paid sharing and steady growth in the ad-supported plan. The company expects Q3 revenue of $8.5 billion, up 7% YoY, attributed to more average paid memberships. Furthermore, Netflix anticipates more substantial revenue growth in Q4 as efforts to curb password sharing gain steam and advertising revenue grows.