Netflix shares fell about 1.6% in after-hours trading despite strong second-quarter results. The report beat Wall Street expectations in terms of both revenue and profit. The company delivered double-digit growth, improved operating margin, and raised its full-year forecast, signaling confidence in continued subscriber growth and the advertising segment. However, management warned that higher content and marketing costs in the second half of the year may weigh on margins.
Key Financial Data π
- Revenue: $11.08 billion (+16% YoY) vs. expected $11.07 billion
- Earnings per share (EPS): $7.19 vs. $7.08 expected; $4.88 a year ago
- Net income: $3.13 billion (+45% YoY)
- Operating income: $3.78 billion (+45% YoY)
- Operating margin: 34.1% vs. 27.2% a year earlier
- Free cash flow (FCF): $2.27 billion (+91% YoY)
- Operating cash flow: $2.42 billion
- Full-year revenue forecast: $44.8–45.2 billion (raised from $43.5–44.5 billion)
- Full-year operating margin forecast: 30% (previously 29%)
- Q3 forecast: Revenue $11.53 billion, EPS $6.87, operating margin 31.5%
Financial Results π
Revenue of $11.08 billion (up 16% YoY) was driven by user growth, higher subscription prices, and rising ad revenue. Net income amounted to $3.13 billion, and EPS reached $7.19 – nearly 47% more than a year ago. The operating margin increased to 34.1%, supported by favorable FX effects and cost control. All geographic regions reported double-digit revenue growth in currency-neutral terms, led by APAC (+24%).
Free cash flow rose 91% to $2.3 billion, driven by high operating profit and disciplined capital investments. Netflix repurchased $1.6 billion worth of shares and reduced its debt to $14.5 billion, maintaining $8.2 billion in cash.
Management Commentary π£
Management pointed to progress on key priorities: scaling the ad business, improving user experience, and investing in global content. The new Netflix Ads Suite now covers all ad markets, offering better targeting and performance measurement. The company expects ad revenues to double in 2025.
User engagement remains high thanks to global hits such as Squid Game S3 (122M views), Tyler Perry’s STRAW (109M), and the animation KPop Demon Hunters, which broke soundtrack streaming records. Retention metrics remain “stable and industry-leading,” even after price hikes.
Outlook and Forecasts π
Netflix raised its full-year revenue forecast to $44.8–45.2 billion (from $43.5–44.5 billion) and expects an operating margin around 30% (previously 29%). The upward revision reflects USD weakness and strong business momentum. For Q3, the company forecasts $11.53 billion in revenue (+17% YoY), EPS of $6.87, and an operating margin of 31.5%.
However, management expects margin pressure in the second half due to higher amortization of content costs and increased marketing spend. It reaffirmed its 2025 free cash flow target in the range of $8–8.5 billion. Upcoming releases include Wednesday S2, the Stranger Things finale, Happy Gilmore 2, Guillermo del Toro’s Frankenstein, and live events – the Canelo–Crawford boxing match and NFL games on Christmas.
Operational and Business Updates π
Netflix continues to invest in local content, production infrastructure, and new formats – including live sports, gaming, and interactive experiences. In Q2, the company announced a €1 billion investment in Spain through 2028 and the expansion of its production hubs in New Jersey and New Mexico. A new TV interface and recommendation engine are being rolled out to boost user engagement.
On the monetization front, the ad-supported subscription tier reached 94 million monthly active users and remains a key growth driver. The company expects advertising to become a significant revenue source in the coming years.
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