Netflix (NASDAQ:NFLX) Reports Sales Below Analyst Estimates In Q2 Earnings

Kayode Omotosho /
2023/07/19 4:13 pm EDT

Streaming video giant Netflix (NASDAQ: NFLX) fell short of analyst expectations in Q2 FY2023 quarter, with revenue up 2.72% year on year to $8.19 billion. Netflix made a GAAP profit of $1.49 billion, improving on its profit of $1.44 billion, in the same quarter last year.

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Netflix (NFLX) Q2 FY2023 Highlights:

  • Revenue: $8.19 billion vs analyst estimates of $8.29 billion (1.24% miss)
  • EPS: $3.29 vs analyst estimates of $2.85 (15.4% beat)
  • Revenue guidance for Q3 2023 is $8.5 billion at the midpoint, below analyst estimates of $8.68 billion
  • Free cash flow of $1.34 billion, down 36.7% from previous quarter
  • Gross Margin (GAAP): 42.9%, up from 41.1% same quarter last year
  • Global Streaming Paid Memberships: 238.4 million, up 17.7 million year on year

Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to or what movie they watch, or finding a date, online consumer businesses today are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have increased usage and stickiness of many online consumer services.

Sales Growth

Netflix's revenue growth over the last three years has been unremarkable, averaging 12.7% annually. This quarter, Netflix reported a rather lacklustre 2.72% year on year revenue growth, falling short of Wall St expectations.

Netflix Total Revenue

Guidance for the next quarter indicates Netflix is expecting revenue to grow 7.25% year on year to $8.5 billion, improving on the 5.91% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 12.3% over the next twelve months.

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Usage Growth

As a subscription app, Netflix generates revenue growth by growing both the subscriber base and how much each subscriber spends over time, on average.

Over the last two years the number of Netflix's users, a key usage metric for the company, grew 6.5% annually to 238.4 million. This is an ok growth for a consumer internet company.

Netflix Global Streaming Paid Memberships

In Q2 the company added 17.7 million users, translating to a 8.03% growth year on year.

Key Takeaways from Netflix's Q2 Results

Sporting a market capitalization of $211 billion, more than $8.58 billion in cash and with positive free cash flow over the last twelve months, we're confident that Netflix has the resources it needs to pursue a high growth business strategy.

The positive this quarter was a big beat on global streaming subscriber net adds, likely driven in part by the paid sharing launch. Guidance for next quarter calls for similar net adds compared to Q2, which is also slightly ahead of expectations. However, it was unfortunate to see that revenue missed, implying that revenue per subscriber was below expectations. Additionally, the revenue guidance for the next quarter missed analysts' expectations. The market was also excited about advertising revenue from the company's ad-supported tier, but Netflix said that this revenue stream is not yet material, which is a slight disappointment. Overall, it seems to us that this was a complicated quarter for Netflix. The company is down 2.97% on the results and currently trades at $462.82 per share.

Netflix may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.