Why did the Netflix share price lift despite losing 970,000 subscribers?

A couple stares at the tv in shock, one holding the remote up ready to press.A couple stares at the tv in shock, one holding the remote up ready to press.

The Netflix Inc (NASDAQ: NFLX) share price soared in the US after the company released quarterly results showing net income of more than $1.4 billion.

Netflix shares jumped 7.85% to $217.46 on the NASDAQ during after-hours trade. In Tuesday’s trading, Netflix shares climbed 5.61%. For perspective, the NASDAQ leapt 2.93% on Tuesday.

Let’s take a look at what Netflix reported today.

Netflix reports quarterly results

Highlights of the Netflix Q2, 22 results include:

  • Total revenue of $7.97 billion
  • Revenue jumped 1.3% on the previous quarter and 8.55% compared to Q2, 21
  • Loss of 970,000 global streaming paid memberships
  • Total of 220.67 million global streaming paid memberships
  • Operating margin of 19.8%
  • Net income of $1.441 billion, up 6.5% compared to Q2,21
  • Diluted earnings per share (EPS) of $3.20, up from $2.97 per share in Q2,21

What else did Netflix report

Despite the loss of subscribers, Netflix said membership was “better than expected”. The company said it is in a position of strength.

Average revenue per membership (ARM) increased 7% year on year, excluding the impact of foreign exchange.

Revenue in the Asia Pacific region jumped 23% compared to the previous year, excluding foreign exchange, and is now almost as big as the company’s Latin America business.

Europe, the Middle East, and Africa revenue also climbed 13% year on year, while Latin America revenue rose 19% and US Canada revenue gained 10%.

Netflix added 1.1 million subscribers in the Asia Pacific region in the quarter, up from one million in the previous corresponding year.

The best Netflix movie in quarter two was Hustle, featuring Adam Sandler. This attracted 186 million hours of viewing. This was followed by Senior Year, starring Rebel Wilson, with 161 million viewing hours.

Netflix is also investing in animated features and building on non-English programming. Netflix said:

While we always have room to improve, we’re very pleased with how far we’ve come in providing so much satisfaction and enjoyment to our members.

What’s ahead?

Netflix wants to accelerate revenue growth and improve monetisation. The company is planning to add a new lower-priced plan with advertising in early 2023. This will be in addition to existing plans that are free of ads.

Netflix plans to roll this plan out in markets where advertising spend is high. Commenting on this initiative, the company said:

Our global ARM [average revenue per membership] has grown at a 5% compound annual rate from 2013 to 2021, so it makes sense now to give consumers a choice for a lower priced option with advertisements, if they desire it.

Netflix is also working on plans to monetise up to 100 million homes that are not paying for Netflix, despite using the services. Netflix added:

We know this will be a change for our members. As such, we have launched two different approaches in Latin America to learn more.

Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023.

Share price snapshot

The Netflix share price has dived 62% in the past year, while it has lost 66% year to date.

However, in the past month, Netflix shares have soared nearly 18%. For perspective, the NASDAQ has dropped nearly 12% in the past year.

The post Why did the Netflix share price lift despite losing 970,000 subscribers? appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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