Reed Hastings, CEO of Netflix of
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Shares of Netflix recovered from an initial dip and were just after the bubble Tuesday after the company reported profits missing on the bottom line. The company’s earnings were slightly better than estimates, and it confirmed speculation that it will expand more into gaming.
Here’s what the company reported versus expectations:
- Earnings per share (EPS): $2.97 vs. $3.16 expected, according to Refinitiv survey of analysts
- Revenue: $7.34 billion vs. $7.32 billion expected, according to Refinitiv
- Global paid net subscribers: 1.54 million versus 1.19 million expected, according to Street Account
Analysts weren’t expecting a blockbuster quarter when it comes to subscriber numbers, according to Street Account, they expected 1.19 million users. The company said it added 1.54 million users to close the quarter with more than 209 million paid memberships.
“COVID has created some lumpiness in our member growth (higher growth in 2020, slower growth this year), which is paving its way. We continue to focus on improving our service for our members and bringing the best stories from around around the world,” the company writes in a letter to investors.
Netflix said its revenue growth in the past quarter came from an 11% increase in average paid streaming subscriptions and an 8% growth in average revenue per subscription.
Most eyes were on what Netflix expects for the third quarter. Netflix said it expects 3.5 million net additions, while investors had anticipated 5.46 million net subscriber additions in the third quarter, according to Street Account data. Much of the optimism comes from Netflix’s upcoming content, as much of it had been pushed back to the second half of this year and next.
In the first half of this year, Netflix said it spent $8 billion in cash on content and expects a full-year content depreciation to be about $12 billion.
“If we meet our forecast, we will have added more than 54 million paid net additions in the last 24 months or 27 million year-on-year over that period, which is consistent with our pre-COVID annual rate of net additions,” says Company. said.
The company confirmed it was also breaking into the gaming space. Netflix said it sees gaming as a new category of content, comparing it to its expansion into original movies, animation and unscripted TV.
Potential games will be included in Netflix subscriptions at no additional cost, the company said. Initially, the focus will be on mobile games.
“We are thrilled as always with our range of movies and TV series and expect a long runway of increasing investment and growth across all of our existing content categories, but as we’ve been in our pursuit of original programming for nearly a decade, we believe that The time has come to learn more about how our members value games,” the company said.
The company recently hired video game executive Mike Verdu from Facebook, where he served as vice president of augmented reality and virtual reality content, as the company is making a deeper push into gaming.
Netflix is also under pressure from tough year-to-year comparisons as consumers were in the midst of the Covid-19 pandemic last year and spent much more of their time online and in need of entertainment.
Netflix said Q2 engagement per household was lower than last year, but still 17% higher than Q2 2019.
“The pandemic has led to unusual jerkiness in our growth and distorts year-to-year comparisons as acquisition and engagement per household peaked in the early months of COVID,” the company reported.
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Correction: This story has been updated with the correct estimate of the total number of paid Street Account subscribers.