Who would have thought that Netflix would be posting an additional 5.9 million subscribers globally from April to June despite password-sharing changes? Well, the formula appears to be working.
In its latest shareholder report, Netflix posted a Q2‘23 revenue of $8.2 billion and an operating profit of $1.8 billion, which the streaming giant said was in line with its forecast. The company says revenue is now “higher” in each of its regions – higher than pre-launch of paid sharing in 100+ countries, adding that signups are already outnumbering cancellations.
The report noted Netflix is “seeing healthy conversion of borrower households into full paying Netflix memberships” as well as more users adding extra members to their accounts. So, this means Netflix has acquired more firepower to crack down on password sharing in all the other countries it is operating.
Netflix’ revenue growth
Revenue in Q2 2023 grew 3% year-on-year. This revenue growth was driven by a 6% increase in average paid membership, while ARM declined 3% year over year.
The year-on-year ARM decline was driven by a combination of limited price increases over
the past 12 months (leading up to the launch of paid sharing), the timing of paid net additions (primarily late in the quarter due to the May 23 rollout of paid sharing in Q2), and a higher mix of membership growth from lower ARM countries.
Netflix’s $6.99 per month ad-supported tier may have also contributed to the streamer’s 3% year-on-year increase in revenue.
The Verge
Q2 2023’s operating income is reported to have totalled $1.8 billion, up 16% – which was $1.6 billion in Q2 2022. Netflix, however, reports gross debt of $14.5 billion and cash and short-term investments of $8.6 billion.
After highlighting in March 2023 that Europe, the Middle East and Africa (EMEA) is the most significant region in terms of subscribers, paid membership was reported to be 79.81 million. However, revenue in that region [$2.6 billion] was lower than US, Canada & Australia (UCAN) at $3.6 billion.
Netflix reports $16.3 billion revenue in H1 2023 as of June 2023.
Yet, according to Reuters, the Q2’23 revenue fell short of analysts’ estimates, sending shares tumbling nearly 9% in after-hours trading.
Netflix’s paid subscribers
Netflix reports claimed the company paid net additions of 5.9 million for Q2’23, with over 1 million paid net adds in each region.
In Q2 2022, the streaming platform reported minus one million subscribers as “we successfully rolled out paid sharing to more than 100 countries (representing over 80% of our revenue).”
EMEA recorded the most paid net additions at 2.43 million and average revenue per subscriber at $10.87.
Side: Netflix had a total of 238.4 million subscribers worldwide as of the end of June.
The customer retention strategy
Engagement: “We focus on engagement because it’s the best proxy we have for satisfaction. It’s also closely linked to retention, an important driver of our business. Key for Netflix members is the variety and quality of our content, with the understanding that quality is in the eye of the beholder…The combination of content variety and personalisation means that each person easily finds titles they will love.”
Netflix says it reviewed its ‘Netflix Top 10’ in June to evolve the weekly engagement data for the most popular shows and movies, across 93 countries. The streaming platform says it continues to provide total hours viewed, but now ranks titles by the number of views.
The revenue generation strategy
Paid sharing/Ads: “We’ve been working to improve our monetisation through initiatives like paid sharing and advertising. This will allow us generate more revenue off a bigger base, which we can reinvest to make Netflix even better for our members.”
The company says advertising offers consumers a lower price point but there is a strategic focus on improving the ads experience for both members and advertisers.
Brands can also now target media buys on our Top 10, which is updated daily and enables them to connect with audiences during our biggest viewing moments.
Netflix, in its Q2’23 report
H2 2023 forecast
Netflix forecasts revenue growth of 7% YoY to $8.5 billion, which will come “from growth in average paid memberships.”
The company expects that growth will accelerate more substantially in Q4’23 as account sharing between households is further monetised and advertising revenue maintains steady growth.
“While we’ve made steady progress this year, we have more work to do to reaccelerate our growth,” the company said in its quarterly letter to shareholders.
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