Netflix Shines During Dark Media Times

As the media industry finds itself in an unforeseen writers and actors strike, business is doing good at the streaming giant household, Netflix Inc NFLX. Although results were mixed with shares dropping 5% after hours, they were better than expected which is a sharp contrast to The Walt Disney Company DIS and Warner Bros. Discovery Inc WBD who have been pulling content from their streaming services to save on licensing fees as both trimmed their workforce by thousands of employees in the previous year as part of a cost saving strategy. Moreover, Paramount Global PARA and Comcast Corporation CMCSA warned this year that their streaming business are in for the biggest annual losses to date.

Second Quarter Highlights

Announcing its latest quarterly finances, Netflix made a profit of $1.8 billion on the back of revenue that amounted to $8.3 billion. 

But the most important achievement is the fact that Netflix added 5.9 million subscribers while analysts expected only 2 million new households, with its global userbase now amounting to 238 million subscribers across the globe. In the US and Canada, it added 1.2 million subscribers which is its largest regional quarterly gain since 2021. More importantly, this is a sign that Netflix’s primary initiatives for the year are luring in subscribers. Netflix did it by cracking down password sharing and launching a cheaper advertising tier of $6.99 per month. CFO Spencer Neumann confirmed that the users who had previously shared the service and now chose to pay for their own accounts were the primary fuel for revenue acceleration. 

Guidance

Netfix expects to gain another 6 million subscribers with revenue of $8.5 billion in the undergoing quarter, which translates to a 7% YoY increase but below the $8.7 billion expected by analysts. Revenue is expected to accelerate during the remaining half of the year as the full picture of benefits from cracked down password sharing comes to light, along with the growth of the ad-supported plan. Netflix improved its free cash flow guidance for the full year from $3.5 billion to $5 billion as the actors and writers strike lowered content spend. 

Unlike Disney, Netflix Rebounded

It seems that even as the media industry finds itself in havoc brought on by the strike, Netflix’s fundamental business is doing fine and certainly much better compared to last year’s comparable quarter when its subscriber growth came to a halt. 

Disney, on the other hand, is pulling back to find focus and slowing down, as its CEO Bob Iger confirmed to CNBC. Disney is undergoing a deep reorganization of its business with with $5.5 billion cost-cuts, with a $3 billion trim of content spending, excluding sports.  

With recent Pixar misses, Iger announced that licensing the company’s content to other streaming platforms remains a possibility with Warner Bros. Discovery Inc WBD reportedly already in talks to do the same with its HBO content, even to Netflix. 

Netflix Barely Mentioned Gaming Because It Was Not Needed

Unlike Disney, Netflix does not need to board another train and therefore, it didn’t need to talk much about gaming. Netflix spoke about the video game business back in 2021 when it needed a new growth narrative, one that it no longer needs as its basic one is working out just fine. All in all, Netflix portrayed a very positive picture with its latest results that is entirely different to last year when it lost subscribers for the first time in its history.  Advertising is pleasing investors, users are happy with its content offerings, and as a result, more cash is in store. With its international content, Netflix is among rare players who are well positioned to weather the extended writers and actors strike which is the first time both unions have walked out since the 1960s.

Netflix Is Better Positioned Than Others

With the pay strike and the use of AI potentially disrupting the industry from all sides, some analysts such as Deutsche Bank believe Netflix has superior positioning compared to its streaming peers. In a note to investors, Deutsche Bank even argues that virtually all of the headwinds that are hampering operations of traditional TV focused media companies are in fact tailwinds for Netflix who now also counts on another income source from ad-supported subscriptions. While Disney fights to recreate magic at its kingdom, Netflix is shining amid dark times for the media industry. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.