Netflix Q2 2021 Earnings Report Recap

^{Source: Predictions based on analysts' consensus from Visible Alpha}

Netflix (NFLX) Financial Results: Analysis

Netflix, Inc. (NFLX) reported Q2 FY 2021 earnings that missed analyst expectations, up 86.8% compared to the year-ago quarter. Revenue just matched estimates, rising 19.4%. Global paid streaming subscribers, which Netflix refers to as "global streaming paid memberships," came in at 209.2 million for the quarter, beating analyst estimates by about half a million. The number was also slightly above Netflix's own forecast. The company's shares fell as much as 3.5% in after-market trading. Over the past year, Netflix's shares have provided a total return of 5.8%, well below the S&P 500's total return of 33.0%.

NFLX Global Paid Streaming Subscribers

Netflix's global paid streaming subscribers rose 8.4% year over year (YOY), the slowest pace in at least 14 quarters. Global paid streaming subscribers represent the number of global users that have signed up and paid for a subscription to receive streaming services. A core feature of Netflix's strategy is to grow its streaming membership business globally, as it is the company's main source of revenue. Netflix recently surpassed the 200 million mark in total global paid streaming subscribers at the end of FY 2020. Growth for the year was helped along by viewers sheltering at home during the COVID-19 pandemic and eager for streaming entertainment.

However, last year's growth acceleration is partly to blame for decelerating growth in recent quarters, according to Netflix. The company said, "COVID has created some lumpiness in our membership growth (higher growth in 2020, slower growth this year), which is working its way through." Netflix also noted that engagement per household member was down compared to the unprecedented levels experienced last year during the pandemic.

But it is also becoming increasingly difficult to attract new subscribers amid an increasingly competitive environment that includes rivals like Apple Inc.'s (AAPL) Apple TV+, The Walt Disney Company's (DIS) Disney+, Amazon.com, Inc.'s (AMZN) Amazon Prime Video, and AT&T Inc.'s (T) HBO Max. The U.S. streaming market has become increasingly saturated: more than 80% of American consumers have at least one streaming-service subscription, and the average subscriber pays for four separate streaming services.

Netflix plans to expand into the video game market as growth in its core streaming business wanes. The company recently hired Facebook, Inc. (FB) executive Mike Verdu, a video game industry veteran, to bolster the company's video game team. In its Q2 FY 2021 letter to shareholders, Netflix confirmed that it was in the early stages of a further push into gaming and that it sees video games as an additional content category, similar to its earlier expansion into original films, animation, and unscripted TV. Games will be included with memberships at no additional cost, the company said.

Looking ahead to Q3, Netflix anticipates that it will attract another 3.5 million global streaming paid subscribers, bringing its total to about 212.7 million.