Important Takeaways from Netflix’s (NFLX) Q2 2024 report

Netflix, Inc. (NASDAQ: NFLX) has expanded its subscriber base consistently in recent years, with growth accelerating after it launched a crackdown on password sharing a year ago. While delivering better-than-expected second-quarter results, the company this week issued cautious subscriber guidance, indicating that membership growth in the US market may be nearing saturation.

Guidance

The Los Gatos-headquartered pioneer of streaming video service warned that paid net additions will be lower in the third quarter compared to the prior-year period when the results benefitted from the impact of paid sharing. It forecasts a 13.9% increase in Q3 revenues to $9.73 billion and expects an operating margin of 28.1%. Net profit is expected to be $2.24 billion or $5.10 per share in the September quarter.

Meanwhile, the management raised its full-year revenue growth guidance to 14-15% from the previous forecast of 13-14%. The upward revision reflects the positive membership growth trends and business momentum, which is partially offset by the strengthening of the US dollar against most other currencies. The company has a good track record of attracting viewers to its platform by offering premium content. At the same time, the ads business is growing at a steady pace, with ad-supported memberships growing 34% sequentially in the most recent quarter.

Stock Slides

Netflix’s stock has mostly traded above its 52-week average so far this year. The shares slid soon after Thursday’s earnings report as the market responded negatively to the weak subscriber growth forecast. Though NFLX regained momentum later, it experienced weakness during Friday’s trading. The stock is currently trading close to its 2021 peak, after making steady gains since the beginning of the year.

From Netflix’s Q2 2024 earnings call:

“We’ve been scaling our ads member base very quickly from zero two years ago to where we are today. And we’re excited to say that we’re on track to achieve our critical scale goals for all of our ads countries in 2025. Clearly, we expect further growth beyond that, but that represents a great threshold to get to and then to build more scale and more attractiveness from there. So, that allows us to shift more of our energy now on more effectively monetizing that rapidly growing inventory.”

Q2 Earnings Beat

For the second quarter, Netflix reported stronger-than-expected revenue and profit, as it did in the preceding quarter. The company added 8.05 million new members and ended the quarter with a total of 277.65 million paid subscribers. There was double-digit membership growth across all geographical segments. Net income climbed to $2.15 billion or $4.88 per share in Q2 from $1.49 billion or $3.29 per share in the corresponding period of 2023. The bottom line benefitted from a 17% increase in revenues to $9.56 billion.

Netflix’s shares traded lower throughout Friday’s session, extending the post-earnings weakness. However, the price has increased by a third in the past six months.