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Netflix topped its own modest expectations in the second quarter of 2021, seeing its total subscriber base rise by more than 1.5 million, topping the 1 million subscriber target it set last quarter. Netflix’s total subscriber base now sits at 209 million.
Critically, all of the company’s growth came internationally, as the company lost some 400,000 subscribers in the U.S. and Canada. The Asia-Pacific region led growth with a net of more than 1 million subscribers.
In terms of revenue, Netflix delivered $7.3 billion, as compared to $7.16 billion in Q1. With lower marketing and content spend, the company’s margins have never been higher. Indeed, its average revenue per user (ARPU) in the U.S. and Canada hit $14.54 in the quarter, far higher than any other streaming service. However, in the Latin America and Asia-Pacific regions, ARPU remains under $10.
The company is forecasting 3.5 million net subscriber adds in the third quarter of 2021, another modest figure.
Netflix has had a rough 2021 so far in terms of subscriber growth. In Q1 it added only 4 million subscribers, below the 6 million it had forecast (it added 15.8 million in the same quarter a year earlier).
“We had those 10 years that were smooth as silk, and we are just a little bit wobbly right now,” co-CEO Reed Hastings said on the company’s earnings call.
“It really boils down to COVID, frankly,” Netflix CFO Spencer Neumann added on the call. “For us, at a minimum it creates some short-term choppiness in the business trends.”
Still, it maintains a dominant position in streaming video. According to The Gauge, a Nielsen tool that measures TV usage (and that Netflix endorses), Netflix accounted for 7 percent of all TV viewing in June, the most of any streaming service (YouTube had 6 percent). That being said, the majority of TV viewing remains with broadcast and cable TV.
Netflix says that Army of the Dead, Fatherhood and Sweet Tooth were among its most popular shows and films in Q2.
2020 was a boom year for Netflix, despite the pandemic, as consumers subscribed to streaming services in record numbers amid lockdowns and quarantines. That boom year delivered what the company called a “pull-forward,” with customers who otherwise may have waited to subscribe ultimately paying for the service.
Going forward, the company is betting that a return to more normalized film and TV production and an increased cadence of originals later this year will help it return to growth. “COVID and its variants make predicting the future hard, but with productions largely running smoothly so far, we’re optimistic in our ability to deliver a strong second half slate,” the company said Tuesday. Ted Sarandos added on the company’s earnings call that the 2021 slate remains “pretty backweighted.”
At the same time, it continues to push in overseas markets, experimenting with less expensive mobile-only plans and other offerings, and says it expended the mobile-only plan to 78 new countries in recent months. The company disclosed in its shareholder letter: “Like in our other markets, this plan complements our existing three tiers of service. In the five markets where we had previously launched a mobile-only plan, we have found that the mobile-only plan has been an effective way to introduce more consumers to Netflix while being roughly revenue neutral as the lower average revenue per membership is offset by incremental acquisition and generally better retention.”
At the same time, Netflix is also beginning to explore other business lines, including merchandising, live events, and even video games. This month the company announced that it hired former Facebook and Electronic Arts executive Mike Verdu to be its vp game development.
Netflix expanded on its gaming ambitions in the earnings report, saying that it will initially be focused on mobile games, and that they will be included in the monthly subscription price.
As for live events and merchandising: “They are not a profit pool of any material size on their own, but the reason we are doing them is to help the subscription service grow, and be more important in people’s lives,” Hastings said, adding that Netflix is “A one-product company with a lot of supporting elements.”
On the gaming side, however, product chief Greg Peters said that it will be a multi-year effort, and while games may lean on Netflix IP, they are open to original concepts as well.
In its earnings letter, Netflix addressed the consolidation impacting the entertainment industry.
“The planned combination of Warner Media Group and Discovery and Amazon’s pending acquisition of MGM are examples of the ongoing industry consolidation as firms adapt to a world where streaming supplants linear TV,” the company wrote. “The industry has consolidated materially over the years (Time Warner/AT&T, Viacom/CBS, Discovery/Scripps, Disney/Fox, Comcast/NBCU/Sky, etc.) and we don’t believe this consolidation has affected our growth much, if at all.”
“These are all the same players we have been competing against from the beginning, just through different channels,” Sarandos added on the earnings call.
Hastings added on the call that while Disney buying Fox made strategic sense to expand Disney into a more general entertainment company, he didn’t necessarily see the same logic in the WarnerMedia-Discovery merger.
Does that mean Netflix will be a buyer or seller? “While we are continually evaluating opportunities, we don’t view any assets as ‘must-have’ and we haven’t yet found any large-scale ones to be sufficiently compelling to act upon,” the letter adds.
On the company’s earnings call, Netflix’s vp finance and investor relations Spencer Wang says the company routinely debates acquisitions of both content and companies, but it really focuses on companies that would absolutely be core to the business, and that are unencumbered, meaning their content isn’t locked up elsewhere.
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