Investing.com -- Netflix reported Thursday third-quarter revenue guidance that missed Wall Street estimates results even as the streaming giant reported better-than-expected Q2 results amid blowout subscriber adds, driven by a strong content slate and an ongoing crackdown on password sharing.
Netflix Inc (NASDAQ:NFLX) shares fell 1.5% in premarket trading Friday.
Netflix reported earnings of $4.88 a share on revenue of $9.56B, topping estimates of $4.74 on revenue of $9.53B.
The streaming giant raked in 8M users in Q2, well above the 4.8M estimated, driven by a strong content slate.
"In Q2 we had a wide variety of hit series like Bridgerton S3, Baby Reindeer, Queen of Tears and The Great Indian Kapil Show, and popular films like Under Paris, Atlas (NYSE:ATCO) and Hit Man and The Roast of Tom Brady, which attracted our largest live audience yet," the company said.
Operating margins continued to rise in the quarter, coming in at 27%, up 500 basis points year-over-year.
Ads tier membership grew 34% quarter on quarter, as the streaming giant continued to make steady progress scaling its ads business.
Ad-revenue isn't expected to be a primary driver of the company's revenue growth in 2024 or 2025, or the medium term, Netflix said, acknowledging that demand from advertisers is lagging the amount of ad-space it has available for sale.
"The near term challenge (and medium term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory," it added.
For Q3, the company guided revenue of $9.73B, missing estimates of $9.81B, but EPS of $5.10 beat estimates of $4.74. Operating margin is expected to rise to 28.1%, which, if reached, would match a record high for NFLX.
Heading into the second half of 2024, the company's focus remains consistent: strong revenue growth, subscriber increase supported by ad mix and password initiatives, improving operating margins, and a commitment to returning free cash flow to shareholders through buybacks.
"In many ways, this continues an evolution for NFLX from a company where subscriber trends were the dominant theme to one rooted around compounded revenue growth, relative industry positioning, expanding margins and capital returns," Goldman Sachs analysts commented.
"Looking long term, this array of business model and product initiatives likely set up NFLX as a sustained double digit revenue growth compounder with margin expansion in the coming years, in our view. That said, we still see a balanced risk/reward on shares at current levels," they added, maintaining a Neutral rating on the stock.
Meanwhile, Evercore ISI analysts were somewhat more bullish, reiterating an Outperform rating and raising their NFLX price target from $700 to $710 after the report.
"Subs & Margins were the two biggest highlights and best explain why the stock traded flat in what we view as a trigger-seller market," they noted.
Citi analysts also commented on Netflix's Q2 print.
"While results were solid, we believe investor expectations were high heading into the print (given the recent run up in the equity)."
Yasin Ebrahim contributed to this article.