Why Netflix isn’t pressing the panic button
(CNN) — Netflix lost 433,000 subscribers in the United States and Canada during the second quarter, according to financial results issued after the bell on Tuesday.
That’s not great news for a company that has churned out huge growth in the past, inspiring rivals such as Disney, Apple, Comcast and WarnerMedia to launch their own streaming services.
But Netflix isn’t panicking. The company added 10 million new global customers in the same quarter last year, when the pandemic was raging and consumers in many countries were limited to home entertainment.
And the streaming giant made up for weaker 2021 numbers in its home market with growth in Asia and Latin America, topping its global forecast of 1 million new paid memberships between April and June by 500,000.
But it also made the case that much better days are ahead. In a letter to shareholders, Netflix argued that it doesn’t need to get bigger via acquisitions to fend off rivals, and it underscored its massive global growth potential.
“We are mostly competing with ourselves to improve our service as fast as we can. If we can do that, we’re confident we can maintain our strong position and continue to grow nicely,” said Netflix.
Acquisitions? No thanks: Netflix made clear in its letter to shareholders that it doesn’t plan to join the media industry trend of using mergers and acquisitions to get bigger and add more blockbuster content.
Amazon, for example, spent nearly $9 billion in May to buy MGM, the Hollywood studio synonymous with Leo the roaring lion. WarnerMedia is meanwhile combining with Discovery.
Netflix said it doesn’t need to play that game.
“The industry has consolidated materially over the years, and we don’t believe this consolidation has affected our growth much, if at all,” the company said in its letter to shareholders.
“While we are continually evaluating opportunities, we don’t view any assets as ‘must-have’ and we haven’t yet found any large scale ones to be sufficiently compelling to act upon,” it added.
Where’s the growth? Netflix said the second quarter is traditionally a tough time to add subscribers in the United States and Canada, a trend made even more pronounced by the easing of pandemic restrictions in many places.
But this is now a global business. Netflix added more than 1 million new subscribers in Asia Pacific between April and June, and another 760,000 in Latin America. It now has 209 million subscribers around the world.
The global nature of the audience — and content — is delivering benefits. Part two of the French-language heist thriller “Lupin” was a huge international hit, for example, with 54 million households tuning in over its first four weeks.
Netflix said there is still room to grow.
Citing figures from data provider Nielsen, the company said that streaming represents just 27% of U.S. television screen time. Netflix accounts for 7%.
“Considering that we are less mature in other countries and that this excludes mobile screens (where we believe our share of engagement is even lower), we are confident that we have a long runway for growth,” it said.
The bottom line: Netflix’s second quarter profit this year was $1.3 billion, up from $720 million in the year-earlier quarter. Its revenue jumped 19%, to $7.3 billion. Shares were up slightly in premarket trading.