LOS GATOS, Calif.—For Q2, 2022, Netflix once again reported steep sub losses that were down by 1 million around the world and an even steeper 1.3 million in its most lucrative U.S. and Canadian markets.
But the declines handily beat the company’s own forecast of a 2 million sub loss for the quarter and management announced that the streamer should return to sub growth in Q3, 2022 with an expected 1 million sub gain.
Investors seemed encouraged by the numbers, with the company’s stock trading up by 5.7% in after hours trading at 6:35 p.m. ET.
In its letter to shareholders, the company also slightly delayed the launch of its ad-supported streaming tier to early 2023, which had previously been slated to launch by the end of 2022.
Total global subs declined from 221.64 million at the end of the first quarter to 220.67 million subs at the end of Q2, a decline of about 1.17 million subs since the start of the year. Netflix is predicting that trend will reverse itself with a 3.8% sub increase to 221.67 million by the end of Q3, 2022.
U.S. and Canadian subs fell from 74.58 million at the end of Q1 to 73.28 million at the end of Q3, a drop of 1.94 million so far this year.
Global revenue increased by 8.6% in Q2, but was hurt by a very strong U.S. dollar, which contributed to a decline in operating income from $1.97 billion in Q1 to $1.58 billion in Q2 and a decline in its operating margin from 25.1% to 19.8%. Earnings per share also fell from $3.53 to $3.20, with a further decline forecast for Q3 to $2.14.
Highlighting the impact of the strong dollar, the letter to shareholders noted that “Our Q3 revenue growth forecast of 5% translates into 12% year over year revenue growth on a constant currency basis.”
The company also stressed ongoing strong demand for its content, noting that more than 1.3 trillion minutes were viewed on Netflix in the U.S. during the 2021-2022 season, more than any U.S. network and nearly as much viewing as the top two broadcast networks combined. Overall Netflix had about 7.7% of all viewing, a record for the streamers, in June of 2022, per Nielsen.
In terms of the ad supported tier, Netflix told shareholders that “We’ll likely start in a handful of markets where advertising spend is significant. Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one. Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners. While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues).”
As previously reported, it also said it was continuing to expand its program to clamp down on password sharing. “We’re in the early stages of working to monetize the 100m+ households that are currently enjoying, but not directly paying for, Netflix,” the shareholder letter said. “We know this will be a change for our members. As such, we have launched two different approaches in Latin America to learn more. Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023. We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America.”
