Netflix’s earnings demonstrate resilience in turbulent media landscape

The most important takeaway from Netflix’s second quarter earnings is that their business is thriving.

That’s right. Even in a challenging media and entertainment landscape, Netflix’s core business remains strong.

In the quarter, Netflix gained 5.9 million new subscribers, evidence that their two key initiatives for 2023 — cracking down on password sharing and introducing a cheaper $6.99 per month advertising tier — are attracting new customers. Notably, Netflix added 1.2 million subscribers in the United States and Canada, marking its highest regional quarterly gain since 2021.

However, this is not the case for the rest of the media industry. Other major players like Disney and Warner Bros. Discovery have been cutting content from their streaming services to reduce expenses, resulting in significant employee layoffs to improve cash flow. Paramount Global and Comcast’s NBCUniversal have also predicted that 2023 will be a year of substantial losses for their streaming businesses.

In contrast, Netflix has raised its free cash flow estimate to $5 billion for the year, surpassing its previous projection of $3.5 billion. This increase is partly due to anticipated reductions in content spend resulting from ongoing strikes by actors and writers. As a result, Netflix will have even more cash on hand than initially anticipated.

Looking ahead, Netflix expects to gain around 6 million new subscribers in the next quarter. The company also forecasts that revenue will accelerate in the second half of the year, as it begins to experience the full benefits of its password-sharing crackdown and sees steady growth in its ad-supported plan.

Last year, Netflix experienced a 60% decline in valuation when streaming subscriber growth stalled. In response, the company turned its focus to its new video game business, which was introduced in the middle of 2021, as a means of generating new growth.

Remarkably, this quarter’s shareholder letter barely mentions video games. Why? Because unlike other players in the industry, Netflix doesn’t need a new narrative. The old one still holds. Streaming continues to grow, cash reserves are increasing, and advertising is generating investor excitement. Additionally, Netflix has a robust pipeline of international content and a vast library to weather any potential disruptions caused by extended writers and actors strikes.

“The lack of references to video games in its shareholder’s letter suggests that advertising is currently the top priority for the company,” commented Ross Benes, an analyst at research firm Insider Intelligence.

Following the release of the earnings report, Netflix’s shares declined by 5% in after-hours trading. However, this drop is more likely a result of profit-taking after the company’s significant gains this year (up over 62% as of Wednesday’s closing price), rather than a reflection of disappointment in the quarterly numbers.

After a substantial setback last year, Netflix is now back on track without needing to change its course.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

– CNBC’s Lillian Rizzo contributed to this article.