Netflix Inc (NFLX)

Q2 Results

Netflix Inc (NFLX) 

We wrote about Netflix on 28 April 2024 and this write-up can be found here.

We revisit the company in the light of most recent quarterly (Q2) results which were released last week.   

Historically, the June quarter is usually a weak quarter for member additions, but this quarter broke the trend. 

• Netflix quarterly numbers beat expectations in Q2, with membership growing to 278mn members.  8mn added in Q2 (5mn was the analysts’ expectation) and this is a +17% Y/Y growth.

• The subscriber addition of 8mn follows the 9.3mn net addition in Q1. As shown in the chart below, the company had added only 5.9mn paying users in Q2 2023.

The geographical breakdown of these subscriptions is shown above. There has been a steady growth in non-UCAN regions. As we noted in our earlier report this tends to reduce the average revenue per member (ARM) as non-UCAN ARM is below average. 

Netflix's revenue growth depends on two main factors. Paid memberships and the ARM.   

ARM is about $140 per annum. This multiplied by the 278mn membership gives the $39bn annual revenue run-rate. Netflix has said they will stop sharing membership and ARM data going forward. They will instead disclose revenue and operating margin. The company argues that new recent initiatives like tiered pricing, attack on paid sharing, and advertising make subscriber numbers less indicative of the company's performance. It is assumed there are an average of ~2 to 2.5 viewers per membership so 278mn translates to about 600mn viewers.

We will consider the quarterly results in more detail below.