The company added 10.1 million new subscribers in the second quarter, a sharp rise from the year before’s 2.7 million, boosted by people staying at home due to lockdown measures amid the coronavirus pandemic. The increase brings the number of additions for the first half to 26 million from 12 million year-on-year, a leap the company says will likely start slowing down in the second half of the year as people get through the initial shock of covid-19 and accompanying social restrictions. Net adds for the third quarter are seen at 2.5 million, against 6.8 million the year before, as the earlier sharp rise pulls forward some demand.
Revenues for the quarter went a bit above expectations, rising 24.9 percent from the year earlier to USD 6.15 billion. The company attributed the rise to the record number of customer additions, for a Q2, but also to less and delayed spend on content and marketing. Forex effects continued to weigh, with a USD 289 million impact on streaming ARPU. The operating margin jumped to 22 percent from 14.3 percent, helped by the higher than expected membership. The net profit more than doubled to USD 720 million but nevertheless missed expectations. The net operating cash flow leaped to 1.041 billion from a negative 544 million.
Looking ahead, Netflix noted the launch of new streaming services by WarnerMedia, Disney and NBCUniversal, growing investments into premium content at Apple and Amazon, and the “astounding” growth of TikTok, but said it was satisfied with its strategy, and that it will continue with its strategy of improving its service and content every quarter, “faster than our peers.”
For Q3, the company is guiding for revenues of USD 6.327 billion, an operating margin of 19.7 percent and a net profit of USD 954 million.
For the full year, the company is still targeting a 16 percent operating margin. It hopes to pass this level really but forex effects remain the wildcard. Netflix said it wants to grow its annual operating margin to 19 percent next year. Looking at free cash flow expectations, Netflix now sees its free cash flow breakeven to positive, compared to a negative USD 1 billion or better. This comes from a pause in production due to the pandemic, plus the higher-than-expected paid adds. The cash flow will likely go back in the negative in 2021, as expected.
