Netflix Q2 revenue grows 9%; adds 1.1 mn paid subscribers in APAC region

Netflix has released its quarterly results for the April-June 2022 period. Revenue in Q2 grew 9% year over year, driven by a 6% and 2% increase in average paid memberships and average revenue per month (ARM), respectively. Excluding the impact of foreign exchange, ARM rose 7% year over year.

Q2 was better-than-expected on membership growth, and foreign exchange was worse-than-expected (stronger US dollar), resulting in 9% revenue growth (13% constant currency), said the streamer in its letter to the shareholders.

Click here to check the Award Categories

In APAC, revenue grew 23% year over year. At over $900 million of revenue, APAC is approaching the size of the streamer’s LATAM business. Netflix added 1.1 million paid memberships in the region. ARM in APAC was 2% year over year, due to the impact from the price decrease in India last December as well as plan mix, which was partially offset by higher ARM in Korea and Australia. Excluding India, APAC ARM grew 4% year over year on a constant currency basis.

Q3 Forecast

“Our Q3 revenue growth forecast of 5% translates into 12% year over year revenue growth on a constant currency basis. Similarly, excluding the impact of currency, operating profit growth would be 3% year over year (vis-a-vis our forecast decline of -29%) and operating margin would be 20% (vis-a-vis our forecast of 16%),” states the letter.

“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience. 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,” said the letter to shareholders.

The streamer attributes the 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.

“We’ve now had more time to understand these issues, as well as how best to address them. First and foremost, we need to continue to improve all aspects of Netflix. This focus on improving our core service has served us well over the past 25 years, and remains our north star to drive continuous growth. It’s why we strive for an ever better content, marketing and product experience. Also, as a pure play streaming business, we’re unencumbered by legacy revenue streams. This freedom means we can offer big movies direct-to-Netflix, without the need for extended or exclusive theatrical windows, and let members binge-watch TV if they want, without having to wait for a new episode to drop each week. This focus on choice and control for members influences all aspects of our strategy, creating what we believe to be a significant long term business advantage,” said the letter.

Ad-supported platform

The streaming platform announced that its lower priced advertising-supported offering will complement its existing plans, which will remain ad-free. “Our global ARM 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,” says the streamer.

It didn’t specify where it will launch the new ad-supported version. “We’ll likely start in a handful of markets where advertising spend is significant… Our advertising business in a few years will likely look quite different than what it looks like on day one. Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners. While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues),” says the letter.

Paid Sharing

The streamer said that it is in the early stages of working to monetise the 100m+ households that are currently enjoying, but not directly paying for, Netflix. “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. We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America,” said the letter.