The leading streaming service had a robust Q2, led by 34% growth in its ad-tier service.
Netflix (NASDAQ:NFLX) stock was moving higher Friday after the streaming service delivered robust Q2 earnings and raised its revenue growth guidance for fiscal 2024.
Netflix posted revenue for the quarter of $9.6 billion, up 17% year-over-year, while net income climbed 44% to $2.15 billion, or $4.88 per share. Revenue and earnings results topped analysts’ estimates. Nonetheless, profits were down from Q1 2024, when Netflix posted earnings per share of $5.10.
The corporate also raised its revenue growth guidance for fiscal 2024 to 14% to fifteen%, up from 13% to fifteen%.
Netflix stock rose about 5% on the opening bell on Friday to over $678 per share, nevertheless it dropped all the way down to around $651 because the day wore on, still up roughly 1.5% for the day. Yr-to-date, Netflix stock has gained 38.7%.
Ad-tier service sees 34% growth in subscribers
Netflix has experienced rapid growth in its cheaper ad-tier service. The service, just $6.99 monthly for 2 streams, has largely replaced its basic, no-ad plan, which has been phased out within the UK and Canada, and can soon be phased out within the U.S. and France.
In consequence, the ad-tier service grew by 34% within the quarter, in comparison with Q1.
“Ads fulfill two essential strategic priorities for Netflix: first they allow us to supply lower prices to consumers; and second, they create an extra revenue and profit stream for the business,” company officials said within the letter to shareholders.
In only 18 months because the ad-tier launched, the service accounts for 45% of all latest subscribers.
Overall, Netflix boosted its number of world paid subscribers to 278 million, up 3% from the previous quarter and 17% from Q2 of 2023. The spike in subscribers stems from several aspects, explained CFO Spencer Neumann on the earnings call.
One is the crackdown on password sharing that went into effect last 12 months. One other is the lower cost point for the ad service, while the third is its strong content slate.
The most important hits for the quarter include the live roast of former NFL player Tom Brady, Netflixʻs first live event; season three of Bridgerton, together with the series’ Baby Reindeer, Queen of Tears and The Great Indian Kapil Show. Further, the movies, Under Paris, Atlas and Hit Man were also hits.
Outlook for Q3 and full 12 months
In its guidance, Netflix expects revenue growth of 14% 12 months over 12 months within the third quarter.
Nonetheless, the corporate expects paid net additions in Q3 to be lower than the third quarter of 2023, which was the primary full quarter that the crackdown on passing sharing went into effect.
It also calls for 14% to fifteen% revenue growth for the complete 12 months, up from previous guidance of 13% to fifteen%.
It could possibly be hard for Netflix to sustain the membership growth it has seen recently, now that the surge from the password-sharing changes have been in effect for a 12 months. Nonetheless, the cheaper price service will definitely help, while the ads will create one other robust revenue stream.
Netflix has improved its efficiency because the operating margin jumped to 27.2% within the quarter, from 22.3% in Q2 2023, and it’s forecasted to hit 28.1% at the top of the 12 months. Also, free money flow is projected to be $6 billion for the 12 months — lower than the $6.9 billion last 12 months, but still number.
Analysts are bullish
Netflix earned several price goal upgrades post-earnings, including BMO Capital, which raised it by $53 to $770 per share.
That seems a bit optimistic, but Netflix seems to have found its footing and needs to be a solid grower. It’s also reasonably valued for a growth stock, so investors should put it on their radars.