Netflix Quarterly Revenue Misses Forecasts

Streaming video pioneer Netflix disappointed Wall Street on Wednesday with second-quarter revenue that fell short of analyst estimates, sending shares tumbling nearly 9% in after-hours trading.

Reuters reports the revenue figure, along with a weaker-than-expected forecast for revenue in the third quarter, overshadowed the addition of 5.9 million new streaming customers from April through June and earnings that easily topped predictions.

The Wall Street Journal reports the company gained 5.9 million subscribers, after losing nearly one million customers in the year-ago quarter, as people who are no longer able to share the service for free opted to pay for their own accounts. The company said it is now rolling out that effort in nearly every remaining country.

The continuing Hollywood writers and actors strikes have led Netflix to spend less on content this year, the company said. It raised its free cash flow forecast to $5 billion from an earlier estimate of $3.5 billion.

“This strike is not the outcome that we wanted,” co-Chief Executive Ted Sarandos said. The company had hoped to have reached new contracts with the unions by now and is committed to forging an agreement “as soon as possible,” he said.

Netflix’s core focus on streaming and its vast international presence have meant its fortunes are diverging from competitors who own traditional TV channels, rely on theatrical releases and are still in the early days of building global direct-to-consumer businesses.

Revenue fell short of the company’s projections, weighed down in part by price cuts overseas earlier this year, growth in markets with lower average revenue per user, and adding new customers late in the quarter. Shares fell 8.5% in aftermarket trading; before the earnings report, the stock was up more than 60% in 2023.

Offering a variety of high-quality shows and films is critical to retaining members, Netflix said. It highlighted popular content during the quarter, including action films “Extraction 2” and “The Mother,” science-fiction show “Black Mirror” and “Queen Charlotte: A Bridgerton Story.”

Netflix began clamping down on password sharing in the U.S. and more than 100 countries and territories in May, a long-awaited change that forced many sharers to begin paying for their own accounts.  Its password-sharing limitations represent an important source of new revenue for the company but risked annoying customers who have for years shared their accounts with friends, family members and acquaintances. Netflix said last year that its service was being shared with more than 100 million additional households.

Netflix said this week that it would no longer sell its lowest-cost, $9.99 a month ad-free plan. The company now offers monthly plans ranging from a $6.99 ad-supported plan to a $19.99 premium, ad-free plan with the highest-quality stream.

New sign-ups exceeded subscriber cancellations in the quarter, and Netflix said it is seeing “healthy conversion” of borrowers to paying customers, as well as demand for its extra-member feature.