After previously issuing guidance warning of net paid adds in its second quarter being down by 2 million compared with up by 1.5 million a year earlier, but with revenue up 10% year-on-year, Netflix has posted a Q2 with a lower than expected fall in subscribers but also lower than predicted revenues.
For its second quarter ended 30 June 2022, the subscription video-on-demand (SVOD) leader saw global net paid additions fall by 970,000 to total 220.67 million. Revenue for the quarter was $7.97 billion, a rise of 8.6% compared with the same period a year ago. Operating income was $1.578 billion providing a margin of 19.8%, down 5.5 percentage points compared with the previous quarter.
Analysing the trends revealed in its financial statement, Netflix attributed its previous slowing revenue growth to connected TV adoption, account sharing, competition and macro factors such as sluggish economic growth and the impacts of the war in Ukraine.
For Q2 it noted that revenue was driven by a 6% and 2% increase in average paid memberships and average revenue per member (ARM), respectively. Excluding the impact of foreign exchange (F/X), ARM rose 7% year over year. The appreciation of the US dollar (USD) compared with most other currencies since the Q1 earnings report was cited as the primary reason for the variance to the revenue guidance forecast.
In the core United States and Canadian markets, ARM and revenue each increased 10% year over year, excluding the impact of F/X. Paid net adds were down 1.3 million compared with 400,000 in the year ago period.
APAC revenue grew 23% year-on-year and at over $900 million of revenue, APAC is now approaching the size of the company’s LATAM business. Netflix added 1.1 million paid memberships in the region, up 100,000 annually. ARM in APAC was down 2% year-on-year on a F/X neutral basis, due to the impact from our price decrease in India last December as well as plan mix, which was partially offset by higher ARM in Korea and Australia.
Revenue in LATAM grew 19% year over year excluding F/X and surpassed the $1 billion quarterly mark for the first time, helped by constant currency ARM growth of 15%.
Paid memberships were flat sequentially, compared with 800,000 paid net additions in Q2 21.
Noting that it had recognised the nature of the headwinds it faces and had more time as how best to address them, going forward, Netflix conceded that it needed to continue to improve all aspects of Netflix. A focus on improving core service remained its “north star to drive continuous growth” and the company said that it would strive for ever better content, marketing and product experience. it argued that as a pure-play streaming business, it was unencumbered by legacy revenue streams. and that focus on choice and control for members would create what it believed to be a significant long-term business advantage.
It forecast Q3 revenue annual growth of 5%, translating into 12% growth on a constant currency basis, but with paid net adds for Q3 rising by 1 million compared with 4.4 million in the year ago quarter.
As it was releasing its results, Netflix also announced that it planned to acquire Australian animation studio Animal Logic to support its animated film slate, building on films like Academy Award-nominated Over the Moon, Academy Award-nominated Klaus and the recently released The Sea Beast. Headquartered in Sydney and producing award-winning design, visual effects and animation for over 30 years, Animal Logic set up a second studio in Vancouver, Canada in 2015 and has worked on Hollywood blockbusters including Happy Feet, Legend of the Guardians: The Owls of Ga’Hoole, The LEGO Movies and Peter Rabbit 1 & 2, alongside a catalogue of amazing visual effects work including The Matrix, Moulin Rouge!, 300, and The Great Gatsby.
Analysing the trends revealed in its financial statement, Netflix attributed its previous slowing revenue growth to connected TV adoption, account sharing, competition and macro factors such as sluggish economic growth and the impacts of the war in Ukraine.
For Q2 it noted that revenue was driven by a 6% and 2% increase in average paid memberships and average revenue per member (ARM), respectively. Excluding the impact of foreign exchange (F/X), ARM rose 7% year over year. The appreciation of the US dollar (USD) compared with most other currencies since the Q1 earnings report was cited as the primary reason for the variance to the revenue guidance forecast.
In the core United States and Canadian markets, ARM and revenue each increased 10% year over year, excluding the impact of F/X. Paid net adds were down 1.3 million compared with 400,000 in the year ago period.
APAC revenue grew 23% year-on-year and at over $900 million of revenue, APAC is now approaching the size of the company’s LATAM business. Netflix added 1.1 million paid memberships in the region, up 100,000 annually. ARM in APAC was down 2% year-on-year on a F/X neutral basis, due to the impact from our price decrease in India last December as well as plan mix, which was partially offset by higher ARM in Korea and Australia.
Revenue in LATAM grew 19% year over year excluding F/X and surpassed the $1 billion quarterly mark for the first time, helped by constant currency ARM growth of 15%.
Paid memberships were flat sequentially, compared with 800,000 paid net additions in Q2 21.
Noting that it had recognised the nature of the headwinds it faces and had more time as how best to address them, going forward, Netflix conceded that it needed to continue to improve all aspects of Netflix. A focus on improving core service remained its “north star to drive continuous growth” and the company said that it would strive for ever better content, marketing and product experience. it argued that as a pure-play streaming business, it was unencumbered by legacy revenue streams. and that focus on choice and control for members would create what it believed to be a significant long-term business advantage.
It forecast Q3 revenue annual growth of 5%, translating into 12% growth on a constant currency basis, but with paid net adds for Q3 rising by 1 million compared with 4.4 million in the year ago quarter.
As it was releasing its results, Netflix also announced that it planned to acquire Australian animation studio Animal Logic to support its animated film slate, building on films like Academy Award-nominated Over the Moon, Academy Award-nominated Klaus and the recently released The Sea Beast. Headquartered in Sydney and producing award-winning design, visual effects and animation for over 30 years, Animal Logic set up a second studio in Vancouver, Canada in 2015 and has worked on Hollywood blockbusters including Happy Feet, Legend of the Guardians: The Owls of Ga’Hoole, The LEGO Movies and Peter Rabbit 1 & 2, alongside a catalogue of amazing visual effects work including The Matrix, Moulin Rouge!, 300, and The Great Gatsby.
