Shares fall short of Netflix quarterly earnings forecasts

LOS ANGELES, July 19 (Reuters) – Streaming video pioneer Netflix ( NFLX.O ) disappointed Wall Street on Wednesday with second-quarter earnings that fell short of analysts’ estimates, sending shares tumbling nearly 9% in after-hours trading.

The revenue number overshadowed a weaker-than-expected forecast for revenue in the third quarter, the addition of 5.9 million new streaming customers from April to June, and earnings that easily topped forecasts.

Shares of Netflix fell 8.9% after the $435 results.

Netflix is ​​looking for new ways to make money as streaming competition heats up and approaches market saturation in the US. The company introduced a cheaper tier with advertising last November, and in May began asking password borrowers to pay in a widespread crackdown.

The company said it expects revenue growth to accelerate in the second half of the year, as it aims to continue to create compelling shows and movies, improve monetization, develop the video game business and improve the user experience.

“While we have made steady progress this year, there is still much work to do to re-accelerate our growth,” the company said in its quarterly letter to shareholders.

The company reported second-quarter diluted earnings per share of $3.29, ahead of the $2.86 consensus forecast of analysts surveyed by Refinitiv.

Its nearly 6 million subscribers were more than the 1.9 million Wall Street had expected. Netflix had a total of 238.4 million subscribers worldwide as of the end of June.

Quarterly revenue rose 2.7% from a year earlier to $8.2 billion, just shy of analyst estimates of $8.3 billion. The company estimated third-quarter revenue to reach $8.5 billion. Wall Street had predicted $8.7 billion.

Craig Huber, an analyst at Huber Research Partners, said some stakeholders may have become too bullish on Netflix’s ad tiering and password suppression.

“Some investors’ expectations (for the third quarter) were much higher than what was realistic about management’s guidance,” Huber said.

Although the company added subscribers, average revenue per member fell 3% from the previous year. This is partly because many new subscriptions come from countries where Netflix charges lower prices.

Netflix’s ad tier remains a small part of its membership base and is not a current ad revenue stream.

“We’ve got a long way to go from where we are today, even 10% (of revenue),” Chief Financial Officer Spencer Newman said in a post-earnings interview with an analyst.

Jeffrey Wlodarczak, an analyst at Major Research Group, attributed some of the stock declines after the results to investors taking profits. Netflix stock is up 62% this year, up more than 8% this month.

Like its competitors, Netflix is ​​struggling with strikes by tens of thousands of Hollywood actors and writers. The labor action has forced many film and TV productions to close, though analysts say Netflix has an advantage because of its global production.

Netflix raised its 2023 free cash flow estimate to $5 billion from $3.5 billion.

Netflix co-CEO Ted Sarandos, who grew up in a union family and remembers the hardships of his father’s strike, said he hoped labor tensions would be resolved soon.

“Let me start by making one thing absolutely clear: This strike was not an outcome we wanted,” Sarandos said.

Reporting by Lisa Richwin and Dan Chmielewski in Los Angeles; Additional reporting by Yuvraj Malik in Bangalore; Editing by Deepa Babington and Chris Rees

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