Ticker Symbol: NFLX
Netflix shares are up 7% in after-hours trading after the company said it lost less than 1 million subscribers in the second quarter of fiscal 2022. Wall Street analysts on average had been expecting the company to lose 2 million subscribers during the quarter. Netflix is the largest subscription media company in the world with over 220 million global subscribers. Shares in the streaming powerhouse were down 66.5% year-to-date before the earnings results were announced.
For the second quarter, the company reported adjusted earnings per share of $3.20 versus the average analyst estimate of $2.97. Revenue was up 8.6% year over year to $7.97 billion, against the $8.04 billion expected. The strength of the U.S. dollar impacted the miss on the revenue as almost 60% of the company’s top-line comes from outside of the U.S. The company lost 1.3 million subscribers in the U.S. and Canada, and 770 thousand in Europe, the Middle East, and Africa.
The Latin American region gained 10 thousand subscribers, outperforming the loss of 620 thousand subscribers expected by analysts. But the huge beat was delivered in Asia, Pacific, and China (APAC) region where the company said it gained 1.08 million subscribers compared to the 0.5 million that was forecasted. On the revenue front, however, it’s important to note that a Netflix subscription in most emerging markets costs significantly less than subscriptions in developed markets such as North America and Europe.
The operating margin came in at 19.8% versus the estimate of 21.4%. Once again, the stronger dollar and certain one-time costs impacted margins. The company took $70 million in severance costs during the quarter and $80 million in non-cash impairments for certain real estate leases related to rightsizing office footprint. Netflix has been undertaking cost-cutting measures, laying off nearly 500 million employees over the past couple of months.
On a forward-looking basis, the company delayed its much talked about advertising-supported tier for subscribers to the first quarter of 2023. The company also announced recently that it was partnering with Microsoft for the ad-supported model. Management also announced that they were doubling down on animation content, purchasing an animation studio for an undisclosed amount. Additionally, co-Chief Executive Officer Reed Hastings said that the company’s price increase in the U.S. was met with slightly lower customer churn than expected.
Finally, management guided towards lower-than-expected third-quarter numbers. It expects revenue to come in at $7.84 billion, lower than the average estimate of $8.1 billion. Adjusted earnings per share are expected to be $2.14 per share missing analysts’ forecasts of $2.71 per share. The company projects total paid subscribers to end September at 221.7 million, once again short of the expectation of 222.2 million. For now, however, investors seem to be paying more attention to the beat on second-quarter subscribers.
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