Netflix (NFLX) Q2 Earnings Miss, User Growth Beats Expectations

Zacks Equity Research

July 21, 2021 at 9:49 AM·5 min read

Netflix NFLX reported second-quarter 2021 earnings of $2.97 per share that missed the Zacks Consensus Estimate by 6.01% and also fell short of the guidance of $3.16. The figure surged 86.8% year over year.

Revenues of $7.34 billion increased 19.4% year over year and beat the consensus mark by 0.4%. Average revenue per membership increased 8% year over year on a reported basis (4% on a foreign-exchange neutral basis).

The streaming giant added 1.54 million paid subscribers globally compared with 10.1 million in the year-ago quarter and beat its guidance of 1 million paid-subscriber addition.

At the end of the second quarter, Netflix had 209.18 million paid subscribers globally, up 8.4% year over year, beating management’s expectation of 208.64 million paid subscribers.

The subscription growth reflects Netflix’s solid content portfolio amid growing competition from services launched by Apple AAPL, Disney DIS, ViacomCBS, AT&T T, Discovery and Comcast.

This Zacks Rank #3 (Hold) company now expects paid net additions to be 3.5 million compared with the year-ago quarter’s 2.2 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Netflix slipped 2% in after-hours trading following the results.

Netflix, Inc. Price, Consensus and EPS Surprise

Segmental Revenue Details

United States and Canada (UCAN) reported revenues of $3.23 billion, which rose 13.9% year over year and accounted for 44.1% of total revenues. ARPU grew 9% from the year-ago quarter on a foreign-exchange neutral basis.

Paid-subscriber base increased 1.4% from the year-ago quarter to 73.95 million. The company lost 0.43 million paid subscribers, down 114.6% year over year.

Europe, Middle East & Africa (EMEA) reported revenues of $2.4 billion, which increased 26.8% year over year and accounted for 32.7% of total revenues. ARPU grew 2% from the year-ago quarter on a foreign-exchange neutral basis.

Paid-subscriber base increased 11.7% from the year-ago quarter to 68.7 million. The company added 0.19 million paid subscribers, down 93.1% year over year.

Latin America’s (LATAM) revenues of $861 million increased 9.7% year over year, contributing 11.7% of total revenues. ARPU grew 2% from the year-ago quarter on a foreign-exchange neutral basis.

Paid-subscriber base rose 7.2% from the year-ago quarter to 38.6 million. The company added 0.76 million paid subscribers, down 56.6% year over year.

Asia Pacific’s (APAC) revenues of $799 million soared 40.4% year over year and accounted for 10.9% of total revenues. ARPU increased 1% year over year on a foreign-exchange neutral basis.

Paid-subscriber base jumped 24% from the year-ago quarter to 27.88 million. The company added 1.02 million paid subscribers, down 61.7% year over year.

Content Details

Netflix’s second-quarter content slate included Shadow and Bone, Sweet Tooth, Too Hot to Handle Season 2, The Circle, Lupin Season 2, Elite Season 4, Who Killed Sara? Season 2 and docu-series The Sons of Sam.

Movies included Army of the Dead, Fatherhood and The Mitchells vs. The Machines among others.

Netflix has a strong content portfolio for the third quarter of 2021 that includes new seasons of La Casa de Papel (aka Money Heist), Sex Education, Virgin River and Never Have I Ever. Movies include Sweet Girl, Kissing Booth 3, Kate and Vivo.

Netflix plans to spend more than $17 billion in cash on content this year. Through the first half of 2021, the company spent $8 billion in cash on content, up 41% year over year. The company also plans to launch more originals compared to 2020.

Last week, Netflix series and specials received 129 Emmy nominations. With 24 nominations, The Crown tied for the most nominated series. Bridgerton with 12 nominations was also nominated for Best Drama series while The Queen’s Gambit received 18 nominations including Best Limited Series. Cobra Kai, Emily In Paris and the finale season of The Kominsky Method were all nominated for Best Comedy series.

Operating Details

Marketing expenses increased 39% year over year to $604 million. As a percentage of revenues, marketing expenses expanded 120 basis points (bps) to 8.2%.

Moreover, consolidated operating income increased 36.1% year over year to $1.84 billion, driven by higher-than-expected revenue and subscriber growth. Consolidated operating margin expanded 310 bps on a year-over-year basis to 25.2%.

Balance Sheet & Free Cash Flow

Netflix had $7.77 billion of cash and cash equivalents as of Jun 30, 2021, compared with $8.4 billion as of Mar 31, 2021.

Long-term debt was $14.9 billion as of Jun 30, 2021, up from $14.86 billion as of Mar 31, 2021. Streaming content obligations were $21.8 billion compared with $19.2 billion as of Dec 31, 2020.

Netflix reported free cash outflow of $175 million against free cash flow of $691.7 million in the previous quarter.

Guidance

For the third quarter of 2021, Netflix forecasts earnings of $2.55 per share. The Zacks Consensus Estimate is pegged at $3.16 per share, higher than the company’s expectation, indicating growth of 98.7% from the figure reported in the year-ago quarter.

Netflix expects to end the third quarter of 2021 with 212.68 million paid subscribers globally, indicating growth of 9% from the year-ago quarter.

Total revenues are anticipated to be $7.47 billion, suggesting growth of 16.2% year over year. The Zacks Consensus Estimate for revenues stands at $7.31 billion, lower than the company’s expectation.

Operating margin is projected to be 20.7% compared with 20.4% in the year-ago quarter.

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