Netflix earnings bring big subscriber windfall, but stock gets dinged on light revenue forecast

Revenue improved to $8.19 billion from $7.97 billion a year ago. Analysts surveyed by FactSet had expected on average net earnings of $2.85 a share on revenue of $8.29 billion.

For the third quarter, Netflix executives guided for earnings of $3.52 a share on $8.52 billion in revenue, while analysts on average were expecting earnings of $3.23 a share on sales of $8.66 billion.

Free cash flow for the quarter was an eye-popping $1.3 billion, compared with about breakeven in the year-ago quarter.

Shares dipped slid nearly 7% in after-hours trading immediately following the release of the results, after closing the regular session with a slight increase.

Earlier Wednesday, the company ended its basic streaming plan in the U.S. ($9.99 a month) and U.K. for new and rejoining members in a move to press to add more subscribers to its ad-supported service ($6.99), which has accrued more than 5 million customers since its launch late last year. The news sent Netflix’s stock up 0.6% during the regular session.

Read more: Netflix drops basic streaming plan in push for more users of ad-supported plan

Netflix executives have hoped to goose their financial results with cheaper, ad-supported options and a crackdown on password sharing. In a letter to shareholders Wednesday, company executives said the success of paid shared accounts would be expanded to more countries.

“We expect revenue growth will accelerate in the second half of 2023 as monetization grows from our most recent paid sharing launch and we expand our initiative across nearly all remaining countries plus the continued steady growth in our ad-supported plan,” Netflix executives wrote.

In May, Netflix expanded paid sharing to more than 100 countries, which account for over 80% of its revenue. Now, it intends to “start to address account sharing between households in almost all of our remaining countries,” executives said.

Expectations among investors heading into Netflix’s quarterly report were muted. The focus was on Netflix’s switch toward better monetization with an ad-supported service and a rolling crackdown on shared accounts. Analysts in particular were closely watching the performance of Netflix’s new “Basic with Ads” plan ($6.99 a month) and its effectiveness in stanching the defection of subscribers to competing services from Walt Disney Co.
DIS,
+1.27%
and Apple Inc.
AAPL,
+0.71%.

Shares of Netflix have soared 62% so far this year, while the broader S&P 500 index
SPX,
+0.24%
has advanced 19%.