Netflix Inc. extended its lead over the streaming competition, adding 8.05 million customers in the second quarter and raising estimates for annual sales and profit margins.
The subscriber results, announced in a shareholder letter Thursday, topped expectations in every region around the world and included 2.8 million new customers in the Asia-Pacific. Analysts expected a total of 4.87 million on average.
The company's crackdown on password sharing and the introduction of a lower-priced subscriber plan with advertising propelled Netflix to its second-best first half, trailing only the pandemic-fueled boom in 2020. The less-costly plan accounted for almost half of sign-ups last quarter in markets where it's offered, and the company said it will be large enough next year to appeal to major sponsors.
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This quarter, Netflix expects to deliver earnings of $5.10 a share, higher than Wall Street estimates, on sales of $9.73 billion, which is slightly less than analysts forecast. The company said subscriber gains will trail last year's 8.76 million. Analysts predict 5.18 million.
Netflix's surge in growth has occurred while most of its competitors have slowed down, struggling to attract customers and pay for new shows.
The company delivered a number of major hits last quarter, including a new season of Bridgerton, the surprise hit Baby Reindeer and the French movie Under Paris. They helped boost Netflix's share of total TV viewing in the US climbed to more than 8% in the most recent month, more than double any other paid streaming service, according to Nielsen data.
"The challenge for so many of our competitors is that while they are investing heavily in premium content, it's generating relatively small viewing on their streaming services," the company said in its quarterly letter to shareholders.
For the second quarter, Netflix said, earnings rose 48% to $4.88 a share, beating estimates of $4.74. Revenue increased 17% to $9.56 billion, slightly exceeding projections. It ended the quarter with 277.7 million customers worldwide.
Shares of Netflix were little changed in extended trading. They fell initially after the results were announced before recovering. Bullish investors have been pushing the stock back toward the all-time closing high of more than $690 that they reached in November 2021.
Netflix plans to stop reporting subscriber numbers next year, which many analysts interpreted as a bad sign about its growth going forward. Yet the company, which has added more than 17 million customers this year, struck a confident tone Thursday, raising its full-year estimate for profit margins.
In a video interview following the results, management said there are still 500 million homes with smart TVs that don't pay for Netflix, a large addressable market. Netflix can also gain a larger share of TV viewing in the US and other markets.
The most immediate opportunity for Netflix is in advertising. More than 40 million people now use the company's advertising plan every month. Management expects to achieve a meaningful number of subscribers for its advertising tier by next year, but needs to do more work to make money from those customers.
"The near-term challenge (and medium term opportunity) is that we're scaling faster than our ability to monetize our growing ad inventory," the company said.
Management is also increasing the company's investment in video games, with plans to release one new title every month. It will make a Squid Game-inspired video game later this year timed to the debut of the second season of that show.
