Netflix earnings showcase strength as the rest of the media industry struggles

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LOS ANGELES, CALIFORNIA – JUNE 12: Netflix CEO Ted Sarandos attends Netflix’s FYSEE event for “Squid Game” at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charlie Gale/Getty Images for Netflix)

Charlie Gale | Getty Images Entertainment | Getty Images

Main findings from NetflixThe business of second quarter earnings is good.

This is correct. The basic business of a large media and entertainment company is exactly that.

Netflix added 5.9 million subscribers in the quarter, a sign that two of its primary 2023 initiatives — cracking down on password sharing and launching a cheaper ad tier of $6.99 per month — are bringing in new customers. Netflix added 1.2 million subscribers in the United States and Canada in the quarter – its biggest regional quarterly gain since 2021.

This is not the story of the rest of the media industry. disney And warner bros discovery has spent the year paring down content from its streaming services to avoid balance payments and saving on license fees. Both companies have laid off thousands of employees over the past 12 months to boost free cash flow. Paramount Global And comcastNBCUniversal both said 2023 would be the biggest annual loss ever for their streaming businesses.

Meanwhile, Netflix raised its free cash flow forecast for the year to $5 billion. Previously, the company estimated it would cost $3.5 billion, but the actors’ and writers’ strike would cut content spending. This means that Netflix will actually have more cash on hand than previously expected.

In the next quarter, Netflix estimates that the number of subscribers will again jump to around 6 million. The company said revenue will pick up in the second half of the year as it sees the “full benefits” of its password-sharing crackdown and continued growth in an ad-supported plan.

back on track

Netflix’s valuation plummeted 60% last year as streaming subscriber growth stalled. The company spent a substantial amount of time on the earnings conference call focusing on and explaining its new video game business. mid 2021, To help start a new growth saga.

This quarter’s shareholder letter barely addressed video games.

Why? Because unlike the rest of the media industry, Netflix doesn’t need a new narrative. The old one still works. Streaming is on the rise. Stacks of cash are growing. Investors are excited by the ad. Netflix has a steady pipeline of international content and a deep library to deal with the long strike of writers and actors.

“The lack of reference to video games in the shareholder letter suggests that advertising is the shiny object that gets the most attention from the company,” said analyst Ross Benes of research firm Insider Intelligence.

Netflix shares fell 5% after hours. That’s more a symptom of Netflix taking profits after its big gains this year (up 62% as of Wednesday’s close), rather than it being tempered by its early quarterly numbers.

The company is back on track after a massive fall last year. And there was no need to change trains for this.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

— CNBC’s Lillian Rizzo contributed to this article.