Netflix Q3 revenue and earnings fell short of Wall Street targets as the streaming giant said it would cut the frequency of viewing-hours reports as it seeks new avenues of growth. Shares fell by around 8.6 per cent in after-hours trading on July 16th to $67.99 (€59.38).
Netflix reported earnings that beat estimates and revenue that was roughly in line with forecasts in Q2. Revenue grew 13.4 per cent year over year to $12.56 billion, slightly underperforming Bloomberg consensus estimates of $12.58 billion. Revenue growth also moderated from 16.2 per cent in the first quarter of this year.
Netflix shares are now down 40 per cent over the past 12 months, and the streamer acknowledged that “the entertainment industry remains dynamic and competitive.”
“The results of our recent price changes are consistent with prior changes and our expectations. We are leveraging AI to provide a more personalised, immersive and interactive experience for members, enhance ads capabilities for brands, and improve the quality of our series and films. The entertainment industry remains dynamic and competitive. We aim to stay ahead by executing against our three areas of focus: delivering more entertainment value, leveraging technology to improve every aspect of our service, and improving monetisation,” the company said in a letter to shareholders.
Responding to the results, Amelia MacPherson, media and technology senior analyst at RSM UK, said: “While Netflix’s operating profit and earnings per share exceeded expectations, revenue fell marginally short of forecasts. On the face of it, this is a solid set of results. However, they have been partly overshadowed by weaker guidance for the third quarter, with Netflix forecasting a further slowdown in revenue growth. That has prompted investors to look beyond the headline numbers and question whether the streaming giant can sustain the level of growth that has historically justified its premium valuation.”
“It is clear that member engagement remains a key area of focus. Management have reiterated that delivering greater value for members remains central to the business strategy, with continued plans to broaden the platform beyond traditional on-demand streaming through live entertainment, video podcasts and cloud TV games.”
“Netflix has historically been valued more highly than many of its peers because investors believed it could continue growing without relying on major acquisitions. The attempted Warner Bros Discovery deal in February therefore raised an important question: does management believe organic growth alone is no longer enough?”
“Its decision to withdraw the Warner Bros offer did however leave the business in a stronger cash flow position, including the $2.8bn termination fee received as compensation for Warner Bros accepting a superior offer. The key question for investors is whether Netflix can use this additional financial flexibility to reignite growth and justify its premium valuation. As it continues to expand into diversified platforms, further investment in premium content or strategic partnerships may also be required to demonstrate that it can deepen engagement, increase revenues and create new avenues for growth beyond simply raising subscription prices,” concluded MacPherson.
