Photo Credit: Souvik Banerjee from Pixabay

Earlier this week Netflix (Nasdaq: NFLX) reported its second-quarter performance that failed to impress the market. The company continues to lose subscribers, albeit at a slower pace, and is looking at alternate revenue sources to drive growth.
 

Netflix’s Financials

Netflix’s Q2 revenues grew 8.6% to $7.34 billion, falling short of the Street’s forecast of $8.035 billion. EPS was $3.20, ahead of the market’s forecast of $2.94.

During the quarter, it lost 970,000 subscribers, compared with 2 million paid subscribers that it had expected to lose. Netflix now has over 220.67 million paid subscribers worldwide growing 5.5% over the year.

Revenue from North America was $3.5 billion with paid memberships of 73.3 million. It lost 1.3 million new customers in the US and Canadian markets. Europe, Middle East, and Africa revenue was $2.5 billion and the number of subscribers fell by 770,000 to 72.97 million paying customers. Latin America's revenue was $1.03 billion from 39.62 million paid members, with a net addition of 10,000 million subscribers. Asia-Pacific revenue was $908 million from 34.8 million subscribers, with an addition of 1.08 million net subscribers.

For the third quarter, Netflix forecast revenue of $7.84 billion. The market was looking for revenues of $8.1 billion and an EPS of $2.71.
 

Netflix’s Offering Improvement

Netflix has been looking at expanding its presence beyond online streaming into mobile gaming. Since the launch of a small selection of licensed mobile games last November, it has released new games every few weeks, and now has a portfolio of 24 games. The games are all available to broad audiences, and span several genres, including racing with Asphalt Xtreme, the digital version of the card game Exploding Kittens, zombies in Into the Dead 2, and the knitting for cats in Knittens. To continue to build this offering, the company recently announced the acquisition of California-based Night School Studio, Helsinki-based Next Games, and Texas-based Boss Fight Entertainment. The acquisition of these three companies provides Netflix with a range of expertise in multiple geographies, accelerating the buildout of its internal development capacity.

Netflix is currently working on creating a pipeline of new games that will launch over the next few years as a result of these acquisitions. Prior to the acquisition, Next Games raised $20.8 million in four rounds of funding led by Business Finland, Lionsgate, Ridge Ventures, Jari Ovaskainen, AMC Networks, Lowercase Capital, Nuard Ventures, and IDG Capital. Its most recent round of funding was held in November 2019 where it raised €2 million (~$2.05 million). Funding and financial details for the other acquisitions were not disclosed.

To continue to build its content, Netflix also announced plans to acquire California-based Animal Logic. The acquisition will build on a two-year partnership that Netflix has had with them and will allow Netflix to accelerate the development of its animation production capabilities and reinforce its commitment to creating a world-class animation studio. The acquisition will allow both companies to create an animation studio to produce four of Netflix’s largest animated feature films.

Netflix continues to deliver strong results for its original content. It recently released the fourth season of Stranger Things, season three of The Umbrella Academy, and season one of The Lincoln Lawyer. It also reported that The Lincoln Lawyer was renewed for a second season and Heartstopper was renewed for two additional seasons. In its first four weeks, Stranger Things season four generated 1.3 billion hours viewed, making it Netflix’s biggest season of English TV ever.

Besides newer offerings, Netflix is also looking at re-evaluating its subscription plans. Its ad-supported version, which will be a lower-cost subscription offering, is expected to be released in early 2023. Netflix is also looking at a higher-priced sharing plan that will allow members to continue to share their subscriptions with family members or friends that live outside their homes. It expects to release these plans by 2023 as well.

Netflix’s stock is trading at $216.44 with a market capitalization of $96.2 billion. It hit a 52-week high of $700.99 in November last year and a 52-week low of $162.71 in June.