Advanced Television

Netflix upbeat despite another 1m subs loss

July 20, 2022

By Chris Forrester

Netflix has reported there was a near 1 million loss (970,000) of subscribers during its Q2, way down on the 2 million it had forecast earlier this year.

The streamer’s other key metrics were encouraging and in after-hours trading saw Netflix rise 7 per cent in its share price.

Many other Q2 numbers were impressive:

Revenue up 8.6 per cent to $7.97 billion
Overall global subscribers at 220.67 million
Stranger Things Season 4 drew 1.3 billion hours of viewing
Net income $1.44 billion
LatAm revenue grew 19 per cent 

Netflix cash flow generated by operating activities in Q2 was brought in $103 million vs. a loss of $64 million in the prior year period. This helped achieve a free cash flow this quarter of $13 million, compared to a loss of $175 million in Q2/21. For the full year of 2022, Netflix expects to be free cash flow positive to the tune of around $1 billion.

Netflix wrote in its shareholders letter: In the US which is one of the most competitive markets in the world, we drew more TV viewing time than any other outlet during the 2021-22 TV season nearly matching the combined total of the two most watched broadcast networks.And, as Nielsen will announce on Thursday, our share of US TV viewing reached an all-time high of 7.7 per cent in June (vs 6.6 per cent in June 2021), demonstrating our ability to grow our engagement share as we continue to improve our service.”

We have some headwinds right now and we are navigating through them,” Netflix co-CEO Ted Sarandos said on a conference call. “We’ve seen entertainment formats come and go, we’ve seen entertainment business models come and go, and we have managed to grow through all of them, though all kinds of economic conditions and through all levels of competition.”

Hastings said that ad-supported streaming plan will happen in “early 2023.

That rival competition is vicious, and involves the likes of Disney+, Paramount+, Hulu,  Apple TV+, Prime Video, Peacock and their regional rivals, and each and every one of them is throwing billions of cash and gallons of creativity to win – and hold onto – subscribers.

Hastings told analysts on his earning’s call that linear TV will go the way of the dinosaur within the next decade and perhaps sooner. “It’s definitely the end of linear TV over the next five to 10 years,” stated Hastings.

As to its investment in content, Netflix says it will spend around $17 billion on new and acquired content this year, and less than the $18 billion originally expected. The service also expects to add subscribers in the current quarter.

Commenting on the results, Ben Barringer, equity research analyst at Quilter Cheviot, said: “Netflix will be relieved with its Q2 numbers as they are less bad than they certainly could have been. Subscriber numbers were down ‘only’ 1 million which given 2 million was predicted could be seen as a good result. Guidance remains challenged, however, and the slowdown for Netflix remains real as competition increases and macroeconomic factors take effect. Netflix wants to return to growth and there are four key areas that can propel it towards this objective. It is trialling options to tackle password sharing while advertising supported services will be in operation at the beginning of 2023. It could also look towards gaming and sports content as areas of growth, however, these are not guaranteed or necessarily something Netflix could pursue.”

“Despite currency headwinds, margins remained strong. Given Netflix’s challenges year to date this is a positive factor for the stock and we should see margins grow as revenue accelerates. Ultimately Netflix remains an important business in the post-Covid age, and despite subscriber slowdown the case for the company remains positive. The market has discounted the stock by too much, in my opinion, particularly given the business remains the market leader in TV and movie streaming services,” added Barringer.


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