Netflix gains 7% as Q2 profits beat, subscriber losses not as bad as feared

Jul. 19, 2022 4:10 PM ETNetflix, Inc. (NFLX)By: Jason Aycock, SA News Editor85 Comments

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Netflix (NASDAQ:NFLX) is 7% higher after hours as it kicked off earnings season in Communication Services stocks by topping its guidance with a smaller-than-expected loss in subscribers (but still another decline).

The streaming pioneer saw a net drop in 970,000 subscribers in the second quarter, after warning it expected a drop of 2M. And it's forecasting a return to growth in Q3, guiding to net adds of 1M (down from a prior-year 4.4M adds in Q3).

It also beat profit expectations, reporting EPS of $3.20 per share vs. expectations for $2.95 per share, on revenues that largely came in line with expectations at just under $8B.

Membership growth was better than expected and "foreign exchange was worse than expected," the company notes, saying revenue growth was 9% but would have been 13% in constant currency.

"We’re in a position of strength given our $30 billion-plus in revenue, $6 billion in operating profit last year, growing free cash flow and a strong balance sheet," the company says.

For the third quarter, it's forecasting revenues of $7.838B - down slightly sequentially, but up 4.7% year-over-year - and operating income of $1.255B on an operating margin of 16%. It's expecting global streaming paid memberships that shrank to 220.67M in Q2 to swell back to 221.67M in Q3, or 3.8% year-over-year growth.

The company's pointing to the strong dollar again, saying its expectations for 5% revenue growth in Q3 would mean 12% in constant currency.

The company's quarterly executive earnings interview - where J.P. Morgan analyst Doug Anmuth will put questions to co-CEO Reed Hastings, co-CEO and Chief Content Officer Ted Sarandos, Chief Financial Officer Spence Neumann, and Chief Operating Officer/Chief Product Officer Greg Peters - is set for release at 6 p.m. ET.

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