A weak dollar helps Netflix have a "non-off-peak" season, with Q2 profits increasing by over 40% to set a new record, raising the full-year guidance | Earnings Report Insights

In the traditionally "off-season" second quarter, American streaming giant Netflix Inc. still maintained double-digit revenue and profit growth, continuing to benefit from price increases in streaming services and strong membership growth.

The performance growth in the second quarter was more rapid than Wall Street's expectations, and the company raised its sales and profit guidance for the year. Commentators noted that while traditional media company competitors were selling off assets and cutting costs, Netflix continued to thrive. Increased service fees, subscriber growth, and strong momentum in advertising all contributed to Netflix's excellent performance.

However, the outstanding performance did not help Netflix's stock price rise further. Some analysts pointed out that the strong performance in the second quarter was partly due to a weaker dollar, as more than two-thirds of Netflix's customers are from outside the United States. Previously, analysts had warned that Netflix's stock price had already reflected perfect expectations, leaving little room for error.

After the earnings report was released after U.S. stock market hours, Netflix's stock price, which had risen 1.9%, plummeted and fell by about 3% at one point, later narrowing most of the decline to less than 0.5%, but the decline has now expanded to nearly 2%. Over the past year, Netflix's stock price has nearly doubled, with a market value increase of about $250 billion, and the price-to-earnings ratio rising to 43 times, far exceeding the Nasdaq 100 index's 27 times.

On Thursday, July 17, Eastern Time, after the U.S. stock market closed, Netflix announced its financial performance for the second quarter ending June and provided financial guidance for the third quarter and the full year.

1) Key Financial Data:

Revenue: Second quarter operating revenue was $11.08 billion, a year-on-year increase of 15.9%, with analysts expecting $11.06 billion, and a year-on-year increase of 12.5% in the first quarter.

Operating Profit Margin: The second quarter operating profit margin was 34.1%, with analysts expecting 33.3%, compared to 31.7% in the first quarter and 27.2% in the same period last year.

Net Profit: Second quarter net profit was $3.125 billion, a year-on-year increase of nearly 45.6%, with a year-on-year increase of 23.9% in the first quarter.

EPS: The diluted earnings per share (EPS) for the second quarter was $7.19, a year-on-year increase of 47.3%, with analysts expecting $7.08, and a year-on-year increase of 25.2% in the first quarter.

Free Cash Flow: The second quarter free cash flow was $2.267 billion, a year-on-year increase of 86.9%, with a year-on-year increase of 24.5% in the first quarter.

2) Performance Guidance:

Revenue: Expected third-quarter revenue of $11.53 billion, analysts expect $11.28 billion, and full-year revenue is expected to be $44.8 billion to $45.2 billion, while the company previously expected $43.5 billion to $44.5 billion.

Operating Profit: Expected third-quarter operating profit of $3.63 billion, analysts expect $3.47 billion.

Operating Profit Margin: Expected full-year operating profit margin of 29.5%, the company previously expected 29%.

Free Cash Flow: Expected full-year free cash flow of $8 billion to $8.5 billion, the company previously expected $8 billion to $8.91 billion.

Revenue, EPS, and Net Profit All Accelerate Growth Compared to the First Quarter

The financial report shows that in the second quarter, Netflix's revenue and EPS earnings accelerated growth compared to the first quarter, and the growth was stronger than analysts' expectations. Second-quarter revenue increased nearly 16% year-on-year, stronger than the first quarter's growth of less than 13%. Second-quarter EPS increased over 47% year-on-year, about 1.9 times the growth rate of the first quarter.

In the second quarter, Netflix's profit also set a new record for the highest quarterly profit ever recorded in the first quarter. The net profit for the quarter increased nearly 46%, surpassing $3 billion for the first time, almost double the growth rate of the first quarter.

Netflix's operating profit margin increased by about 7 percentage points year-on-year in the second quarter, higher than the analysts' expected increase of about 6 percentage points.

Netflix pointed out in its earnings announcement: "(In the second quarter) both revenue and operating profit were slightly higher than our expectations, mainly due to exchange rates, hedging net values, and the timing of expenses."

Commentary noted that Netflix's performance in the second quarter of the year has historically been relatively sluggish, as the company usually adds more customers at the beginning and end of the year. However, this year, Netflix launched a series of popular series, including the two highest-rated series of the year—Season 3 of "Ginny & Georgia" and the final season of "Squid Game." Additionally, the weakening dollar also brought benefits to Netflix, as most of its revenue comes from outside the United States.

North American Market Accelerates Growth After Price Increase in the Second Quarter; Asia-Pacific Market Maintains Over 20% Revenue Growth

By region, although Netflix raised prices in January this year in several countries, including the United States, Canada, Portugal, and Argentina, its revenue in its "home field" of the United States accelerated growth in the second quarter, with growth increasing from just over 9% in the first quarter to 15%. Exchange rate factors also affected Netflix's business statistics outside North America, especially in Latin America, including Brazil, Argentina, and Mexico. The Asia-Pacific region maintained revenue growth of over 20%.

• In the second quarter, revenue in the United States and Canada (UCAN) market was $4.929 billion, a year-on-year increase of 15%, compared to a year-on-year increase of 9.3% in the first quarter.
• In the second quarter, revenue in the Europe, Middle East, and Africa (EMEA) market was $3.538 billion, a year-on-year increase of 18%, with a 16% increase excluding exchange rate effects, compared to a year-on-year increase of 15% in the first quarter.
• In the second quarter, revenue in the Latin America (LATAM) market was $1.307 billion, a year-on-year increase of 9%, with a 23% increase excluding exchange rate effects, compared to a year-on-year increase of 8% in the first quarter.
• In the second quarter, revenue in the Asia-Pacific (APAC) market was $1.305 billion, a year-on-year increase of 24%, with a 23% increase excluding exchange rate effects, compared to a year-on-year increase of 23% in the first quarter

This year's revenue guidance range raised by nearly 3%, operating profit margin guidance slightly increased, advertising revenue expected to double

Netflix has stopped reporting quarterly user data this year and no longer discloses the number of subscribers, a key metric that Wall Street has long used to evaluate the company's performance. In this context, investors are paying more attention to Netflix's revenue and profit expectations.

In this earnings report, Netflix raised its full-year revenue guidance range, with the lower end increased by nearly 3% to $44.8 billion and the upper end raised by nearly 1.6% to $45.2 billion.

Netflix stated in the earnings report that the new revenue guidance implies an expected year-over-year revenue growth of 15% to 16% for this year, and a year-over-year growth of 16% to 17% when adjusted for currency fluctuations on a constant currency basis. Netflix said:

The increase in revenue guidance mainly reflects the recent decline in the exchange rate of the US dollar against most other currencies, while the remainder is driven by robust growth in membership numbers and advertising sales.

Netflix also raised its operating profit margin expectation for this year from 29% to 29.5%. Netflix stated that based on the exchange rates at the beginning of this year, the company's goal is to achieve an operating profit margin of 29.5% for the full year, and if calculated at current exchange rates, the operating profit margin will be about 30% during the reporting period in 2025.

Netflix is trying to attract customers by launching low-cost, ad-supported services in a dozen markets. In the earnings report, Netflix stated that it expects this year's advertising revenue to be about double that of last year, meaning it will double compared to last year.

Netflix expressed confidence in its performance for the second half of this year, as viewership and box office are expected to perform outstandingly. Upcoming releases include the second season of "Wednesday," the finale of "Stranger Things," the highly anticipated boxing live match between Canelo and Crawford, as well as the comedy film "Happy Gilmore 2" directed by Adam Sandler, the political thriller "A House of Dynamite" directed by Kathryn Bigelow, and the sci-fi horror film "Frankenstein" directed by Guillermo del Toro