The highly anticipated Netflix Q2 quarterly earnings were announced on Tuesday, and the reactions were mixed, with CEO Reed Hastings saying their subscriber numbers were “less bad” than expected. Netflix lost nearly 1 million subscribers.
Netflix’s numbers get dissected
Kim: I have never seen a company scrutinized even in the general media like this. And in our business it's pretty uncommon, let's put it that way.
Matt: They were expected to lose 2 million subscribers, they ended up losing a little bit under 1 million subscribers, so I guess, pop the champagne?!
The key indicator is that they projected that next quarter they will gain a million subscribers, which is what a lot of investors were looking at in the stock popped after that disclosure, because they seem at least to think that these two quarters of losses will be reversed.
“Is Netflix having a little temporary problem, a very Netflix specific problem, or is the whole streaming business in trouble?”
Kim: We're left with ambiguity. Netflix is saying, “We're over the worst of it.” It's a little unclear exactly how they're over the worst of it. Some on Wall Street are encouraged that they say, “They're not going to increase their spending from $17 billion a year on content,” so they now have discipline.
Lower cost advertising-supported tier
Kim: They're advertising that they're going to have this new tier where people, who may not want to pay the full boat for Netflix every month, can get a lower cost advertising-supported tier. That's not coming on until next year.
They’re rushing like crazy to get it done, which makes you sort of think, “What's going on? Why is it so urgent to rush like this?” It's a tricky thing to execute.
Matt: They've now got two more quarters before they say this advertising tier will kick in. And they announced a big splashy partnership with Microsoft, which I think the market does like because: A) Microsoft is already a giant player in the ad business, and B), it's not Google. They're not handing over their keys to the kingdom to the biggest competitor in the space.
“Netflix is driving the entire industry when it comes to the stock market.”
Matt: The entire wagon of Hollywood is hitched to Netflix, because Disney and Paramount, and all these other companies they go up and down when Netflix goes up and down. It's kind of crazy considering the business that all of these other companies are in, whether it's theme parks, or theatrical distribution or consumer products.
Netflix is driving the entire industry when it comes to the stock market. And for the most part, the stock market has lost confidence in the growth trajectory of these companies, and Netflix turning the corner here is at least a somewhat positive sign.
Has Netflix really turned the corner?
Matt: I think that the fact that they are being so rosy in their projections of gaining subscribers, there's a lot of big ifs there. They saw that the numbers for “Stranger Things” in the second quarter were higher consumption-wise than they anticipated, and there will be a little bit of carryover of that potentially, because [its] final two episodes aired in this current quarter.
But there's a long time before the end of this quarter, and will those “Stranger Things” fans turn out? And is there enough coming to keep them interested so that the subscriber numbers won't take a hit? That's the big question.
Kim: I'll just note that “Stranger Things” is not a new property, and there's been a change of personnel and strategy since the approach that created a franchise like [it]. So I am not sure how the page is turned here.