LOS GATOS, Calif.—Netflix's password sharing crackdown helped the company report generally healthy subscriber growth for Q2, 2023 as global subs grew by 5.89 million to 238.39 million and subs in the U.S. and Canadian market increased by 1,173,000 subs to 75,571,000.
Netflix also said the subscribers for its ad-supported plan nearly doubled from a "small membership base" since Q1 but provided no specific numbers.
“Q2‘23 revenue of $8.2B and operating profit of $1.8B were generally in-line with our forecast—and we expect revenue growth to accelerate in the second half of ‘23 as we start to see the full benefits of paid sharing plus continued steady growth in our ad-supported plan,” the company said in a letter to shareholders. “We’re still targeting a full year 2023 operating margin of 18% to 20%. We’re a leader in terms of streaming engagement and, per Nielsen, we had the top original streaming series in the US for 24 of the first 25 weeks of 2023, and the top movie for 21 weeks.”
But Netflix shares declined in after hours trading with slower than expected revenue growth even though the company beat subscriber and earnings per share forecasts.
The company did not release numbers for subscribers to its ad-supported tier. “While we continue to grow our reach—ads plan membership has nearly doubled since Q1— it’s still off a small membership base, so current ad revenue isn’t material for Netflix,” the letter to shareholders said. “Building an ads business from scratch isn’t easy and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream.
Management also remarked on its push to attract subscribers to the ad-supported offering, noting that the ad supported tier now had about 95% of the content available in the ad free offerings.
“Increased sophistication on pricing and plans strategy is important to improved monetization,” the letter said. “In Q1, we lowered prices in a number of less penetrated markets, and in Q2, we phased out our Basic ads-free plan for new and rejoining members in Canada (existing members on the Basic ads-free plan are unaffected). We’re now doing the same in the US and the UK. We believe our entry prices in these countries – $6.99 in the US, £4.99 in the UK and $5.99 in Canada – provide great value to consumers given the breadth and quality of our catalog.
It also said that its crackdown on password sharing was helping its bottom line. “Now that we’ve launched paid sharing broadly, we have increased confidence in our financial outlook,” the company told shareholders. “We expect revenue growth will accelerate in the second half of 2023 as monetization grows from our most recent paid sharing launch and we expand our initiative across nearly all remaining countries plus the continued steady growth in our ad-supported plan (more details in the Monetization and Revenue section)."
Reduced spending on programming and other cost cutting measures also prompted the company to raise its profit margin forecasts.
