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Netflix Kicks Off 2023 with Growth in Revenue and Subscribers

The most popular streaming service now has 232.5 million paid subscribers.

Yesterday, streaming subscription service Netflix released its first quarter 2023 financials, revealing growth in revenue and subscribers. For the first quarter, Netflix reported $8.16 billion in revenue, a 3.7% increase year-over-year. They had operating income of $1.71 billion and an operating margin of 21.0%, both down from the first quarter of 2021, primarily due to foreign exchange rates.

In terms of subscribers, or members as Netflix calls them, Netflix reported they had grown to 232.5 million global streaming paid memberships, including 1.75 million net new additions during the quarter, a 4.9% increase year-over-year. The company said their first quarter revenue and operating profit were in line with their expectations.

“In short, we’re off to a good start in 2023. As always, our focus remains (on) pleasing our members and attracting great creators so that we can continue to build a wildly successful business,” Netflix said in their April 18, 2023 shareholder letter.

First quarter highlights

Netflix shared the following highlights in their shareholder letter:

  • The streaming subscription service had net income of $1.3 billion, down from $1.6 billion in Q1 2021, and diluted earnings per share of $2.88, compared to $3.53 in Q1 2021.
  • Netflix launched paid sharing in four countries – Canada, New Zealand, Spain and Portugal. While this has been controversial, Netflix says they are pleased with the results and will roll it out more broadly in the second quarter, including in the U.S.
  • Netflix is upgrading their ads experience with more streams and improved video quality to appease advertisers and provide a better user experience to attract more streaming subscribers.
  • At the end of March, Moody’s upgraded Netflix’s credit rating to BBB, an investment-grade rating, stating, “Moody’s anticipates that growth in subscribers from the recently launched ad supported service will be gradual but steady and provide a strong long-term opportunity for revenue growth given the mass audience potential and shrinking ad avails in the linear television ecosystem,” reports MarketWatch.

Second quarter forecast

Netflix provided the following outlook for the current quarter:

  • Revenue of $8.24 billion, representing 3.4% growth year-over-year
  • Operating income of $1.57 billion and operating margin of 19.0%
  • Net income of $1.28 billion and diluted earnings per share of $2.84
  • They did not provide a forecast for global streaming paid net additions for the second quarter.
  • The company says it is on track to meet their full year 2023 financial objectives.

“Our primary financial metrics are revenue for growth and operating margin for profitability. Our long term financial objectives are unchanged – sustain double digit revenue growth, expand operating margin and deliver growing positive free cash flow,” Netflix said.

Engagement

Though the majority of viewing is still on linear TV, this provides growth opportunities for streaming subscription services like Netflix. Using data from multiple sources, the chart below shows that Netflix and YouTube are leading the pack in terms of streaming services with Disney and Hulu next in the U.S. and the U.K. Netflix says this engagement is important in terms of subscriber acquisition and retention.

Content, of course, is a big part of engagement, and the popular streaming subscription service has learned that people have a wide range of tastes.

“To please our members, we need to connect them with a title they’ll love in that moment – whether it’s an elevated drama, comedy, action adventure or reality show, versus simply engagement or engagement’s sake,” Netflix wrote.

Some of their most popular recent releases include:

  • Outer Banks
  • You
  • Ginny & Georgia
  • Murder Mystery 2
  • The Night Agent (their 6th most popular English language TV show ever)
  • The Glory (their 5th most popular non-English TV show)
  • Full Swing
  • That ‘90s Show
  • You People
  • Luther: The Fallen Sun
  • Machas Alfas
  • En Place

The company has also recently dabbled in streaming live performances including Chris Rock’s most recent comedy special, Selective Outrage, now the most streamed comedy special of all time in the U.S. and a reunion of Love is Blind, which didn’t go as planned.

Copyright © 2023 Authority Media Network, LLC. All rights reserved. Reproduction without permission is prohibited.

Monetization

Netflix’s shareholder letters are always thorough, touching on virtually every aspect of their business, and this one was no exception. They addressed monetization and revenue, transparently stating that they need to make more money and increase their operating margin, so they can invest in more content.

“We want to be more sophisticated around pricing so that we offer a range of price points and feature sets to suit consumers’ differing needs,” Netflix explained.

Their new ad-supported plans allow the streaming subscription service to offer a lower price point for cost-sensitive consumers or those who want to subscribe to multiple services and are willing to watch a few ads to lower their overall costs.

“While it’s still very early days, we continue to be pleased with our progress across all key dimensions: member experience, value to advertisers and incremental contribution to our business,” Netflix said. “Engagement on our ads tier is above our initial expectations and, as expected, we’ve seen very little switching from our standard and premium plans.”

Netflix recognizes that not everyone loves their changes like paid sharing, and they may lose some subscribers as a result, but that is part of the learning curve – understanding their audiences and what they want.

Regarding competition, it continues to grow as more streaming services copy the Netflix model and strive for more exclusive and original content. That isn’t going to change, especially as services like Max evolve and add content from other services (e.g., Discovery). Other streamers like YouTube and Apple are partnering with major league sports, and that is currently not part of Netflix’s content mix. They have set their path forward and are executing along that path and adjusting along the way.

“We succeed by getting a big better, a bit faster than the competition every month,” Netflix said.

Insider Take

This time last year, there were many naysayers who were dismissing Netflix as a major player because their growth dropped after record subscriber increases during the pandemic. No one can sustain that type of growth forever. As a result, Netflix stock dropped, and the company had to make operational adjustments, including several rounds of painful layoffs. At that time, we said Netflix will survive this.

They are the oldest and, in our opinion, the best streaming subscription service around. They have a more expensive price point, but they have a wealth of original and exclusive content that is constantly changing. They have also have expanded to appeal to international audiences, adjusted their business model to allow for other monetization and revenue options, and they have a simple, clean user experience. Regardless of the state of the economy and the competition, Netflix is still top dog in our book. We believed it then when others didn’t, and we will keep believing in them unless or until we’re proven wrong.

Copyright © 2023 Authority Media Network, LLC. All rights reserved. Reproduction without permission is prohibited.

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