Netflix (NFLX) Quarterly Report 2023

Netflix Co-CEO Reed Hastings attends the Milken Institute Global Conference on October 18, 2021 in Beverly Hills, California.

Patrick T Fallon | AFP | Getty Images

Netflix on Tuesday released mixed financial results and said it was delaying its broad rollout of its crackdown on password sharing.

Netflix originally wanted the rollout to happen late in Q1, but on Tuesday it said it would happen in Q2.

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“While this means that some of the anticipated membership growth and revenue benefits will decline in Q3 rather than Q2, we believe this will result in an improved outcome for both our members and our business,” the company said in his winnings announcement.

The company said it saw subscriber growth impacted in international markets where it has already rolled out such initiatives.

Here are the results Netflix reported on Tuesday, compared to estimates from analysts polled by Refinitiv:

  • Earnings per share: $2.88 versus $2.86 expected
  • Revenue: $8.16 billion versus $8.18 billion expected

For the quarter ended March 31, Netflix reported earnings of $1.31 billion, or $2.88 per share, compared to $1.6 billion, or $3.53 per share, a year earlier . Revenue increased to $8.16 billion from $7.87 billion in the same period last year.

Netflix’s shares initially fell more than 10%, but mostly recovered in after-hours trading.

Netflix’s crackdown on password sharing has been of paramount importance to investors. Late last year, the company said it would begin rolling out measures to allow people who borrowed from other accounts to create their own.

The company has said more than 100 million households share accounts, which is about 43% of its global user base. That has hurt its ability to invest in new content, Netflix said. Both the ad-supported option and the crackdown on password sharing are said to increase profits.

“The second quarter launch will be comprehensive, including the U.S. and most of our countries when we think about it from a revenue perspective,” said co-CEO Greg Peters on Tuesday’s conference call. Peters likened the move to paid sharing to that of rising prices—subscribers first balk and cancel, then slowly come back and sign up for their own accounts.

In February, Netflix outlined password-sharing policies in four countries: New Zealand, Canada, Portugal, and Spain. The company said it would ask users in those countries to set a “primary location” for their accounts and allow users to set up up to two “sub-accounts” for those not living in their home base, for additional fees.

Netflix said Tuesday it was pleased with its push to reduce password sharing. In Latin America, the company said it was experiencing cancellations after the news broke, impacting near-term growth. But, Netflix added, these password borrowers would later activate their own accounts and add existing members as “additional members” accounts. As a result, the company says it is seeing more revenue.

Canada, which is likely to serve as a template for the US, has seen a growing member base due to the introduction of paid sharing, and revenue growth has accelerated and is “growing faster than the US”.

The company said that as it rolls out its paid sharing initiatives, it expects short-term engagement – which is measured by Nielsen for its ad-supported tier – “likely to shrink slightly.” Still, the company believes it will recover as seen in international regions.

Expect a sales boost

Netflix said it believes paid sharing will generate more revenue in the future as it tries to improve its service. On Tuesday, Netflix announced that it expects to spend around $17 billion on content in 2024.

Co-CEO Ted Sarandos said Tuesday the company hopes to avoid a writers’ strike and talks with the Writers Guild of America are continuing.

“We respect the authors and the WGA and couldn’t be here without them. We don’t want a strike,” Sarandos said on Tuesday. Still, Sarandos noted that Netflix has a solid slate of TV and film programming ready in the event of a strike.

Netflix noted on Tuesday that “competition remains intense as we compete with so many forms of entertainment.”

On Tuesday, Netflix said goodbye to what it started — its mail-order DVD business, where it mailed discs to customers in red envelopes. The company’s CEO, Ted Sarandos, said in a blog post that it would finally wind up its DVD business, which “continues to shrink”.

A year ago, Netflix reported its first loss of subscribers in ten years, sending its shares and those of its media peers into a downward spiral. The results prompted Netflix and its streaming competitors to focus on profits rather than subscriber numbers.

As Netflix tried to increase its profits and subscriber base, it focused on an ad-supported plan and a crackdown on password sharing.

Last November, Netflix unveiled its cheaper tier of commercials, which costs $6.99 per month. The ad-supported tier came shortly after losing subscribers as streaming competition increased.

Sarandos recently said that the company will likely offer multiple ad-supported tiers in the future.

Netflix’s ad-supported plan now averages 95% of the same content as its ad-free plans due to recent licensing deals, the company said on Tuesday.

“We are satisfied with the current performance and development of our advertising industry per member,” Netflix said on Tuesday.

Peters added that on Tuesday, Netflix was not ready to announce or forecast any expectations regarding its ad-supported plan.

In some markets, Netflix has seen users switch tiers after the introduction of paid sharing, Peters said, although it was very “country-specific.”

Executives also addressed the blunder that meant millions were unable to watch Sunday’s live broadcast of “Love is Blind.”

Peters and Sarandos both said the company “really regrets having disappointed so many people”.

Peters added that from a technical standpoint, Netflix has the infrastructure to host a live broadcast, as was the case with the Chris Rock comedy special in March. But that “an error was introduced” when trying to improve the Chris Rock special. “We hate when things like this happen, but we will learn from it,” said Peters.

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