LOS ANGELES, July 19 (Reuters) – Major video streaming company Netflix disappointed Wall Street on Wednesday with second-quarter revenue that fell short of analyst estimates, sending shares down nearly 9% in after-hours trading.
The revenue number, along with a weaker-than-expected third-quarter revenue forecast, was overshadowed by the addition of 5.9 million new streaming customers from April to June and earnings that handily beat expectations.
Shares of Netflix fell 8.9% after results reached $435.
Netflix is looking for new ways to make money as competition in streaming intensifies and the market nears saturation in the US. The company launched a cheaper category with ads last November, and began asking password borrowers to pay in a large-scale campaign that began in May.
The company said it expects revenue growth to accelerate in the second half of the year, adding that it aims to continue to create compelling shows and movies, improve monetization, strengthen its video game business, and improve user experience.
“While we have made steady progress this year, we have more work to do to accelerate our growth,” the company said in its quarterly letter to shareholders.
The company reported diluted earnings per share of $3.29 for the second quarter, ahead of the $2.86 forecast of analysts surveyed by Refinitiv.
The 6 million additional subscribers exceeded the 1.9 million Wall Street expected. Netflix had 238.4 million subscribers worldwide as of the end of June.
Quarterly revenue rose 2.7% from a year earlier to $8.2 billion, missing analyst expectations of $8.3 billion. The company estimated that third-quarter revenue would be $8.5 billion. Wall Street was expecting $8.7 billion.
Analyst Craig Huber of Huber Research Partners said some shareholders may have become too optimistic about the Netflix ad category and password suppression.
“Some investors’ expectations (for the third quarter) have outpaced what appears to be the reality of management guidance,” Hooper said.
While the company added subscribers, it said average revenue per member was down 3% from a year earlier. In part, this is because many of the new sign-ups came in countries where Netflix charges low fees.
Netflix said its ad tier remained a small part of its membership base and that current ad revenue is not material.
“We’ve got a long way to go from where we are today, even to 10% (of revenue),” Chief Financial Officer Spencer Newman said in an interview with an analyst.
Pivotal Research Group analyst Jeffrey Wlodarczak attributed some of the decline in stocks after the results to investors selling to take profits. Netflix stock has gained 62% this year, including more than 8% this month.
Like its competitors, Netflix is grappling with the strikes of tens of thousands of Hollywood actors and writers. The labor movement has forced many film and television productions to stop, though analysts say Netflix has an advantage due to its global output.
Netflix raised its free cash flow estimate for 2023 to $5 billion, up from $3.5 billion, in part because it will spend less on content as production closes.
Netflix co-CEO Ted Sarandos, who noted that he grew up in a union household and remembers his father’s struggles on strike, said he hoped labor tensions would be resolved soon.
“Let me start by making something clear: This strike is not the outcome we wanted,” Sarandos said.
(Reporting by Lisa Richwin and Don Chmielewski) in Los Angeles; Additional reporting by Yuvraj Malik in Bengaluru. Editing by Debbie Babbington and Chris Rees
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