★ Netflix Q2 Earnings: Later House of Cards Launch Drives Strong Sub Growth (Jul 17, 2017)
Netflix today kicked off the Q2 earnings season with the first official earnings from a company that I cover, and reported stronger than expected subscriber growth off the back of a House of Cards season launch that was pushed back from Q1. Netflix was way off on its sub growth forecast, and though it surprised on the upside this time around that hasn’t always been the case in several recent guidance misses. Even though Netflix didn’t mention it this quarter, the delayed HoC launch screwed around with lots of year on year comparisons both this quarter and last, since Q1 is usually by far its strongest quarter for subscriber adds and Q2 is usually the low point of the year. Taking a step back, though, Netflix continues on its recent tear, with international growth the major driver, and profits domestically continuing to grow nicely off the back of last year’s price increases. Importantly, Netflix is now projecting that the international business will be profitable on a contribution basis for 2017 as a whole, which will be another major milestone after total non-US subs surpassed US streaming subs for the first time in Q2. The cash flow drain continues to be rapid, with an average of over half a billion dollars per quarter in negative free cash flow over the past year, and over $2 billion in cash content costs in Q2, and $8 billion over the past year, relative to the $6 billion Netflix protected for 2017 on a P&L basis (see this Variety piece I wrote last month for why cash and P&L spending are so different). For now, the subscriber and associated revenue growth are keeping Netflix out ahead of its content spending, but Netflix absolutely has to continue to grow at close to the current rate if it’s to continue to finance massive original content costs and grow profits at the same time.
This is a good time to remind you about the Jackdaw Research Quarterly Decks Service I also offer, which provides slide decks and videos on roughly a dozen major tech companies including Netflix each quarter during earnings season. Tech Narratives subscribers get a 50% discount, so let me know if you’re interested and I’ll send you a coupon code. The Q2 Netflix deck is available now, and will be updated in a few days when the 10-Q is out with more data. You’ll find some of the charts in this Twitter thread from earlier.
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