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LOS ANGELES, CA – JUNE 12: Netflix CEO Ted Sarandos attends the Netflix FYSEE event for “Squid Game” at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charlie Galle/Getty Images for Netflix)
Charlie Galle | Getty Images Entertainment | Getty Images
The main takeaway from NetflixSecond quarter earnings are business… good.
correct. The core business of a large media and entertainment company is fine.
Netflix added 5.9 million subscribers in the quarter, a sign that its core initiative for 2023 — cracking down on password sharing and launching a cheaper $6.99 per month ad category — is bringing in new subscribers. Netflix added 1.2 million subscribers in the US and Canada in the quarter — its biggest regional quarterly gain since 2021.
This is not the story for the rest of the media industry. Disney And Discovery Warner Brothers The year was spent cutting content from streaming services to avoid paying waste and saving on licensing fees. Both companies have laid off thousands of employees over the past 12 months to boost free cash flow. Paramount Global And ComcastBoth NBCUniversal affiliates said that 2023 would be the largest annual loss ever for their broadcast businesses.
Meanwhile, Netflix boosted its free cash flow estimate to $5 billion for the year. Previously, the company estimated it would have $3.5 billion in revenue, but strikes by actors and writers would reduce content spending. This means that Netflix will actually get more money than you previously thought.
In the next quarter, Netflix expects subscriber gains to be around 6 million again. The company said revenue will accelerate in the second half of the year as it sees the “full benefits” of its password-sharing campaign and steady growth in its ad-supported plan.
Back on track
In the past year, Netflix’s rating has dropped 60% as subscriber counts have stalled. The company has spent a significant amount of time on its earnings conference call focusing on and explaining its new video game business, which was presented at Mid 2021, to help kick-start a new growth narrative.
This quarter’s shareholder letter barely addresses video games.
Why? Because unlike the rest of the media industry, Netflix doesn’t need a new narrative. The old one still works. The flow is increasing. Stacks of liquidity are on the rise. The announcement excites investors. Netflix has a steady pipeline of international content and a deep library to outpace the extended writers and actors strike.
“The lack of references to video games in the shareholder letter suggests advertising is the shiny thing that controls most of the company’s focus,” said Ross Bennis, an analyst with research firm Insider Intelligence.
Shares of Netflix fell 5% after hours. It’s more of a symptom of profit-taking after Netflix’s big gains this year (up more than 62% as of Wednesday’s close) than anything to chafe in its preliminary quarterly numbers.
After a sharp fall last year, the company is back on track. And you didn’t even need to switch trains.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
— CNBC’s Lillian Rizzo contributed to this article.
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