(News Bulletin 247) – The streaming platform has certainly recruited many more subscribers than analysts expected. But both its second-quarter earnings and its third-quarter outlook missed the mark.

Recruiting new members is not everything. Netflix realizes this this Thursday. The streaming platform has had a remarkable stock market performance, with an increase in its share price of more than 60% since January 1 and 113% over one year. However, these surges leave little room to disappoint the market.

But in the second quarter, the account is not completely there for the group of video on demand services.

The recruitment of new subscribers certainly took analysts by surprise, with 5.9 million additional paying members, nearly three times the 2 million expected by the research departments.

These customer gains are to be credited to the offensives put in place by Netflix recently, i.e. the arrival of offers containing advertising, with a logically slightly lower price, and above all its actions to monetize users who do not pay subscriptions but use existing subscriber codes.

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Lower revenue per subscriber

In May, the platform implemented restrictions in around 100 countries, offering an option for existing users to share their codes with one or more people outside their household, obviously for an additional fee. The goal is to put an end to a major shortfall, Netflix estimating at 100 million the number of households using its services without paying subscriptions.

But these customer gains come at a certain price, monetization being obviously lower among these new users. Average spending per subscriber at Netflix thus contracted by 3% over one year and by 1% excluding currency effects in the second quarter.

Especially revenues, at 8.19 billion dollars, proved to be lower than analysts’ expectations, which had forecast an amount of 8.3 billion dollars according to a consensus of the company AJ Bell.

Similarly, the revenue target for the third quarter is disappointing, with Netflix expecting to generate $8.52 billion, against $8.67 billion expected by analysts according to Bloomberg.

Cash generation revised upwards due to… strikes

“While we have made steady progress this year, we still have work to do to accelerate our growth,” the company acknowledged in a letter to shareholders.

As a result, Netflix shares suffered on Wall Street, falling 6.4% in pre-opening trading.

“I don’t think the pre-opening drop should be given too much weight as the stock has had a stellar performance this year and has recovered from the poor subscriber growth numbers we’ve seen before. The transition is going well overall and the business still seems confident that it will pay off later in the year,” said Craig Erlam of Oanda.

“It’s possible that the stock’s decline that started in the after-market hours will continue today as most traders do nothing but put profits on the table. But overall, we continue to think that with its new gaming subscription business, password-sharing offensive and healthy cash flow, the stock clearly remains a value to buy,” said Naeem Aslam.

Note that Netflix has raised its cash generation target for the current fiscal year to $5 billion from $3.5 billion. But this revision is partly due to the writers’ strike, supported by the actors, which is currently taking place in Hollywood.

This social movement has the effect of stopping production and therefore content development, reducing Netflix’s expenses and working capital needs. But once this movement has passed, the backlash will be felt on the generation of cash in 2024. “While this can lead to some dispersion of free cash flow between 2023 and 2024, we expect substantial positive free cash flow in 2024”, assured Netflix on this point.