Netflix Stock Rises 7% After Beating Estimates on Subscriber Losses

Nearly 1 million customers fled the streamer this past quarter — 1 million less than Wall Street expected

Netflix Q2 Earnings Results
Netflix co-CEO Reed Hastings. (Photo by Ken Ishii/Getty Images)

Netflix beat its own first-quarter guidance of 2 million global subscriber losses as just 970,000 customers cancelled their subscriptions in the second quarter, leading to an after-hours stock rebound of 7%.

The market-leading streaming service now stands at 220.67 million worldwide subscribers and is projecting a global addition of 1 million new customers in the upcoming third quarter. That positive guidance is a big reason why Wall Street is showing some renewed confidence in the stock.

Despite the positive outlook globally moving forward, Netflix still lost 1.3 million in the saturated United States and Canada (UCAN) market. The company has now shed subs in the UCAN market in three of the last five quarters. At the same time, the Asia Pacific (APAC) region is Netflix’s biggest growth market with subscriber additions in five consecutive quarters, including 1.08 million adds in Q2.

Losses were partially offset by revenue rising this past quarter 9% year-over-year to $7.3 billion, though net income shrank from Q1 to $1.35 billion. In response to its first quarter financial woes, Netflix laid off more than 3% of its total staff, leading to $70 million in severance costs over the last three months.

Netflix cash flow generated by operating activities in Q2 was brought in $103 million vs. a loss of $64 million in the prior year period. This helped achieve a free cash flow this quarter of $13 million, compared to a loss of $175 million in Q2 ’21. For the full year of 2022, Netflix expects to be free cash flow positive to the tune of around $1 billion.

The company has long struggled with consistent free cash flow yet expects to be cash flow positive annually with “substantial growth” in 2023 vs. 2022. Netflix credits its “increasing revenue, solid profitability, and the successful multiyear evolution of our content model” for its growth in this area.

Zooming out, the company is focused on reaccelerating its revenue growth and reigniting subscriber growth.