Netflix released a somewhat uneven earnings picture for the second quarter of 2021 as the massive streaming service came out slightly ahead of predictions when it came to top-line revenue growth and new member sign-ups, but slightly below prediction on bottom-line earnings results.
This situation was noted and explained by the firm in its Q2 shareholder letter, in which it acknowledged the rather unprecedented context.
“The pandemic has created unusual choppiness in our growth and distorts year-over-year comparisons as acquisition and engagement per member household spiked in the early months of COVID. In Q2, our engagement per member household was, as expected, down,” the letter noted, before pointing out that when compared with the more normal Q2 2019 figures, growth was up a full 17 percent.
All in all, the company reports adding 1.5 million users, finishing the quarter with over 209 million paid memberships. Analysis pre-release had been forecasting 1.19 million new users. The streaming service also came out ahead on revenue, capturing $7.34 billion vs $7.32 billion expected. But earnings were a miss, however, as pre-release analyst forecasts called for earnings per share of $3.16, though the actual EPS came in at $2.97 per share.
Netflix reported its revenue growth this past quarter as an 11 percent increase in average paid streaming memberships and 8 percent growth in average revenue per membership. The strongest growth the firm saw was in the Asia Pacific market, from which Netflix noted accounted for two-thirds of the firm’s global paid net additions during the quarter. The U.S and Canada, on the other hand, reported paid memberships were slightly down sequentially (-0.4m paid net addition), a situation Netflix chalked up to its already existent large membership base in the Yukon region coupled with “a seasonally smaller quarter for acquisition.”
Netflix also officially confirmed and offered some small color on its forthcoming expansion into gaming, speculated since last week when it announced the hiring of Mike Verdu — an Oculus, Electronic Arts and Zynga executive — as vice president of games development. The firm is reportedly in the early stages of expanding into games, building on early interactivity pushes the platform has experimented with in the past.
“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV. Games will be included in members’ Netflix subscription at no additional cost similar to films and series. Initially, we’ll be primarily focused on games for mobile devices,” the shareholder letter noted, before confirming that the expansion will not dim the firm’s focus on movies and TV series offerings as Netflix anticipates a “long runway” of growing investment and growth across all of its existing content categories.
During his earnings presentation Chief Operating Officer Greg Peters further added that Netflix will be able to differentiate its gaming offerings, given its vast bank of intellectual property.
As for what comes next, Netflix said it expects 3.5 million net adds for Q3, well behind investor forecasts of 5.46 million net new subscriber additions in the third quarter. Netflix noted if its forecasts come through it will have added its than 54 million paid net adds over the past 24 months or 27 million on an annualized basis, a figure consistent with their pre-COVID annual rate of net additions.
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