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Netflix (NFLX) Q2 Earnings Beat, Revenues Rise Y/Y on User Gain
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Netflix (NFLX - Free Report) reported second-quarter 2024 earnings of $4.88 per share, which beat the Zacks Consensus Estimate by 3.83%. The figure jumped 48.3% from the year-ago quarter.
Revenues of $9.55 billion increased 16.8% year over year and beat the consensus mark by 0.29%, driven primarily by a 16% year-over-year increase in average paid memberships.
On the ads front, ads tier membership grew 34% quarter over quarter. Netflix is building an in-house ad tech platform that will be tested in Canada this year and will launch more broadly in 2025.
The company’s crackdown on password sharing and the introduction of a lower-priced subscriber plan with advertising propelled Netflix to its second-best first half, trailing only the pandemic-fueled boom in 2020.
At the end of the second quarter, Netflix had 277.65 million paid subscribers across more than 190 countries globally, up 16.5% year over year.
This Zacks Rank #3 (Hold) company reported an increase of 8.05 million paid subscribers globally in the second quarter, with a rise of 1% in average revenue per membership (ARM) on a reported basis and 5% growth on foreign-exchange neutral basis in the second quarter. It gained 5.89 million paid subscribers in the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company credited second-quarter gains to the strength of its intellectual property, including a wide variety of hit series like Bridgerton Season 3 (98.5 million views), Spanish investigative TV thriller The Asunta Case (31.3 million views), the crime series Crooks from Germany (15.7 million views), which just renewed for a second season.
Other series that contributed to the company’s second-quarter results are Queen of Tears (29.3 million views) from Korea as well as the sci-fi action movie Atlas starring Jennifer Lopez (79.3M views), the acclaimed comedy Hit Man (33.2 million views) and City Hunter (16.5 million views) and a live-action adaptation of the Japanese manga. The Roast of Tom Brady (22.6 million views) attracted one of the largest live audiences yet.
Audiences were enthralled by the British hit drama Baby Reindeer (88.4 million views and 11 Emmy nominations), which, like The Gentleman, One Day and Fool Me Once, spent multiple weeks on global TV Top 10 list. In the second quarter, India was No. 2 and 3 country in terms of paid net adds and revenue percent growth, respectively, helped by big successful titles like Heeramandi: The Diamond Bazaar (15.0 million views), Netflix’s biggest Indian drama series ever, and Amar Singh Chamkila (8.3 million views), as well as licensed films like Laapataa Ladies and Shaitaan.
Netflix is now looking to expand into new areas, such as live events and gaming, in a bid to cement its dominance in the streaming age. The company expects upcoming events like Joe Rogan: Burn the Boats, Chestnut vs Kobayashi: Unfinished Beef, the Jake Paul and Mike Tyson boxing match as well as weekly WWE programming starting in 2025 to build on that. In May, Netflix announced that it would be the home for both Christmas Day NFL games this year and have exclusive rights to at least one of the NFL Christmas games in 2025 and 2026, besides its $5 billion deal to stream WWE’s flagship wrestling show, Raw.
Netflix has also partnered with Rockstar Games’ Grand Theft Auto, the wildly popular action-adventure video game franchise, to further push into the video game space. In the second quarter, the company added Virgin River and Perfect Match to its gaming roster. Starting in July, NFLX will launch about one new title per month like Emily in Paris and Selling Sunset.
NFLX will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025. While tech giants like Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do. Disney (DIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures.
Shares of NFLX have returned 32.1% in the year-to-date (YTD) period and outperformed Apple, Amazon, Disney and the Zacks Consumer Discretionary sector. Apple, Amazon, Disney and the sector have returned 16.4%, 21.4%, 7.2% and 16.7%, respectively, in the same time frame.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $4.29 billion, which rose 19.3% year over year and accounted for 44.9% of total revenues. ARPU increased 7.3% from the year-ago quarter.
The paid subscriber base for UCAN increased 11.3% from the year-ago quarter to 84.11 million. The company gained 1.45 million paid subscribers compared with the year-ago quarter’s gain of 1.17 million.
Europe, Middle East & Africa (EMEA) reported revenues of $3 billion, which increased 17.4% year over year and accounted for 31.5% of total revenues. ARPU decreased 0.3% from the year-ago quarter.
The paid subscriber base for EMEA climbed 17.7% from the year-ago quarter to 93.96 million. Netflix gained 2.23 million paid subscribers compared with the year-ago quarter’s net gain of 2.43 million.
Latin America’s (LATAM) revenues of $1.2 billion increased 11.8% year over year, contributing 12.6% of total revenues. ARPU decreased 3.5% from the year-ago quarter.
The paid subscriber base for LATAM rose 16% from the year-ago quarter to 49.25 million. It gained 1.53 million paid subscribers in the reported quarter, while the company lost 1.21 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.05 billion increased 14.4% year over year and accounted for 11% of total revenues. ARPU decreased 6.4% year over year.
The paid subscriber base for APAC jumped 24.1% from the year-ago quarter to 50.23 million. The company added 2.82 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 2.7% year over year to $644.1 million. As a percentage of revenues, marketing expenses contracted 90 basis points (bps) to 6.7%.
Operating income increased 42.5% year over year to $2.6 billion. Operating margin expanded 490 bps on a year-over-year basis to 27.2%.
Balance Sheet & Free Cash Flow
Netflix had $6.24 billion of cash and cash equivalents as of Jun 30, 2024 compared with $7.02 billion as of Mar 31, 2024.
Total debt was $13.98 billion as of Jun 30, 2024 compared with $14.01 billion as of Mar 31, 2024.
Streaming content obligations were $23.31 billion as of Jun 30, 2024 compared with $24.2 billion as of Mar 31, 2024.
Netflix reported a free cash flow of $1.21 billion compared with a free cash flow of $2.13 billion in the previous quarter.
During the quarter, Netflix repurchased 2.6 million shares for $1.6 billion and has $5 billion remaining under existing authorization.
Guidance
For the third quarter of 2024, Netflix forecasts revenues to increase 14%, which equates to 19% growth on an F/X neutral basis, due to price changes in Argentina and the devaluation of the local currency relative to the U.S. dollar.
The company anticipates total revenues to be $9.727 billion, suggesting growth of 13.9% year over year. The consensus mark for revenues is pinned at $9.53 billion, lower than the company’s expectation.
NFLX has projected earnings of $5.1 per share, suggesting growth of 36.7% year over year. The Zacks Consensus Estimate for the same is pegged at $4.7 per share, currently lower than the company’s expectation.
Netflix expects paid net additions to be lower than third-quarter 2023, which had the first full quarter impact from paid sharing. Like recent quarters, the company forecasts global ARM on a reported basis to be roughly flat year over year in the third quarter due to ongoing F/X headwinds and plan and country mix.
For 2024, NFLX expects healthy revenue growth of 14-15% based on F/X rates at the end of the second quarter of 2024, up from 13-15% reported previously. The updated revenue forecast reflects solid membership growth trends and business momentum.
The company now expects the full-year 2024 operating margin to be 26% (based on F/X rates as of Jan 1, 2024), up from the prior forecast of 25%, due to the improved revenue outlook and ongoing expense discipline.
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Netflix (NFLX) Q2 Earnings Beat, Revenues Rise Y/Y on User Gain
Netflix (NFLX - Free Report) reported second-quarter 2024 earnings of $4.88 per share, which beat the Zacks Consensus Estimate by 3.83%. The figure jumped 48.3% from the year-ago quarter.
Revenues of $9.55 billion increased 16.8% year over year and beat the consensus mark by 0.29%, driven primarily by a 16% year-over-year increase in average paid memberships.
On the ads front, ads tier membership grew 34% quarter over quarter. Netflix is building an in-house ad tech platform that will be tested in Canada this year and will launch more broadly in 2025.
The company’s crackdown on password sharing and the introduction of a lower-priced subscriber plan with advertising propelled Netflix to its second-best first half, trailing only the pandemic-fueled boom in 2020.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote
Subscriber Growth Drives Revenues in Q2
At the end of the second quarter, Netflix had 277.65 million paid subscribers across more than 190 countries globally, up 16.5% year over year.
This Zacks Rank #3 (Hold) company reported an increase of 8.05 million paid subscribers globally in the second quarter, with a rise of 1% in average revenue per membership (ARM) on a reported basis and 5% growth on foreign-exchange neutral basis in the second quarter. It gained 5.89 million paid subscribers in the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company credited second-quarter gains to the strength of its intellectual property, including a wide variety of hit series like Bridgerton Season 3 (98.5 million views), Spanish investigative TV thriller The Asunta Case (31.3 million views), the crime series Crooks from Germany (15.7 million views), which just renewed for a second season.
Other series that contributed to the company’s second-quarter results are Queen of Tears (29.3 million views) from Korea as well as the sci-fi action movie Atlas starring Jennifer Lopez (79.3M views), the acclaimed comedy Hit Man (33.2 million views) and City Hunter (16.5 million views) and a live-action adaptation of the Japanese manga. The Roast of Tom Brady (22.6 million views) attracted one of the largest live audiences yet.
Audiences were enthralled by the British hit drama Baby Reindeer (88.4 million views and 11 Emmy nominations), which, like The Gentleman, One Day and Fool Me Once, spent multiple weeks on global TV Top 10 list. In the second quarter, India was No. 2 and 3 country in terms of paid net adds and revenue percent growth, respectively, helped by big successful titles like Heeramandi: The Diamond Bazaar (15.0 million views), Netflix’s biggest Indian drama series ever, and Amar Singh Chamkila (8.3 million views), as well as licensed films like Laapataa Ladies and Shaitaan.
Netflix is now looking to expand into new areas, such as live events and gaming, in a bid to cement its dominance in the streaming age. The company expects upcoming events like Joe Rogan: Burn the Boats, Chestnut vs Kobayashi: Unfinished Beef, the Jake Paul and Mike Tyson boxing match as well as weekly WWE programming starting in 2025 to build on that. In May, Netflix announced that it would be the home for both Christmas Day NFL games this year and have exclusive rights to at least one of the NFL Christmas games in 2025 and 2026, besides its $5 billion deal to stream WWE’s flagship wrestling show, Raw.
Netflix has also partnered with Rockstar Games’ Grand Theft Auto, the wildly popular action-adventure video game franchise, to further push into the video game space. In the second quarter, the company added Virgin River and Perfect Match to its gaming roster. Starting in July, NFLX will launch about one new title per month like Emily in Paris and Selling Sunset.
NFLX will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025. While tech giants like Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do. Disney (DIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures.
Shares of NFLX have returned 32.1% in the year-to-date (YTD) period and outperformed Apple, Amazon, Disney and the Zacks Consumer Discretionary sector. Apple, Amazon, Disney and the sector have returned 16.4%, 21.4%, 7.2% and 16.7%, respectively, in the same time frame.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $4.29 billion, which rose 19.3% year over year and accounted for 44.9% of total revenues. ARPU increased 7.3% from the year-ago quarter.
The paid subscriber base for UCAN increased 11.3% from the year-ago quarter to 84.11 million. The company gained 1.45 million paid subscribers compared with the year-ago quarter’s gain of 1.17 million.
Europe, Middle East & Africa (EMEA) reported revenues of $3 billion, which increased 17.4% year over year and accounted for 31.5% of total revenues. ARPU decreased 0.3% from the year-ago quarter.
The paid subscriber base for EMEA climbed 17.7% from the year-ago quarter to 93.96 million. Netflix gained 2.23 million paid subscribers compared with the year-ago quarter’s net gain of 2.43 million.
Latin America’s (LATAM) revenues of $1.2 billion increased 11.8% year over year, contributing 12.6% of total revenues. ARPU decreased 3.5% from the year-ago quarter.
The paid subscriber base for LATAM rose 16% from the year-ago quarter to 49.25 million. It gained 1.53 million paid subscribers in the reported quarter, while the company lost 1.21 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.05 billion increased 14.4% year over year and accounted for 11% of total revenues. ARPU decreased 6.4% year over year.
The paid subscriber base for APAC jumped 24.1% from the year-ago quarter to 50.23 million. The company added 2.82 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 2.7% year over year to $644.1 million. As a percentage of revenues, marketing expenses contracted 90 basis points (bps) to 6.7%.
Operating income increased 42.5% year over year to $2.6 billion. Operating margin expanded 490 bps on a year-over-year basis to 27.2%.
Balance Sheet & Free Cash Flow
Netflix had $6.24 billion of cash and cash equivalents as of Jun 30, 2024 compared with $7.02 billion as of Mar 31, 2024.
Total debt was $13.98 billion as of Jun 30, 2024 compared with $14.01 billion as of Mar 31, 2024.
Streaming content obligations were $23.31 billion as of Jun 30, 2024 compared with $24.2 billion as of Mar 31, 2024.
Netflix reported a free cash flow of $1.21 billion compared with a free cash flow of $2.13 billion in the previous quarter.
During the quarter, Netflix repurchased 2.6 million shares for $1.6 billion and has $5 billion remaining under existing authorization.
Guidance
For the third quarter of 2024, Netflix forecasts revenues to increase 14%, which equates to 19% growth on an F/X neutral basis, due to price changes in Argentina and the devaluation of the local currency relative to the U.S. dollar.
The company anticipates total revenues to be $9.727 billion, suggesting growth of 13.9% year over year. The consensus mark for revenues is pinned at $9.53 billion, lower than the company’s expectation.
NFLX has projected earnings of $5.1 per share, suggesting growth of 36.7% year over year. The Zacks Consensus Estimate for the same is pegged at $4.7 per share, currently lower than the company’s expectation.
Netflix expects paid net additions to be lower than third-quarter 2023, which had the first full quarter impact from paid sharing. Like recent quarters, the company forecasts global ARM on a reported basis to be roughly flat year over year in the third quarter due to ongoing F/X headwinds and plan and country mix.
For 2024, NFLX expects healthy revenue growth of 14-15% based on F/X rates at the end of the second quarter of 2024, up from 13-15% reported previously. The updated revenue forecast reflects solid membership growth trends and business momentum.
The company now expects the full-year 2024 operating margin to be 26% (based on F/X rates as of Jan 1, 2024), up from the prior forecast of 25%, due to the improved revenue outlook and ongoing expense discipline.