THB #189: Netflix Q2 2022 (Pt 1)

I’m writing this piece before the earnings “call” (now a pre-taped video) for Netflix. I expect that the “call” will be more interesting than the shareholder’s letter. They make the case for advertising and internationalization in the letter, but I expect a more polished performance of “Pennies From Heaven” in the “call.”

Okay…

Here is the subscriber count for the United States and Canada over the last 3 years…

Even though this is the worst quarter for domestic sub losses in the history of the company, the sub level is dead flat for the last couple of years. Up and down, but flat.

The growth area is Asia Pacific (APAC). So let’s look closer…

Netflix has added just under 7 million new subs in this area in the last 4 quarters. By far, the biggest growth in subs. But that success is balanced by the same difficulties that all streamers face. ARPU is down 93 cents (10%) over the year. Overall revenue us down from it’s peak last quarter of $917m.

Interestingly, the ARPU issue is even more pronounced in Latin America & Mexico (LATAM) than in Asia Pacific.

As you can see, even with the grown in APAC, the LATAM market is bigger. But it’s every bit as flat as the domestic market… but with the lowest ARPU of all the region groupings for which Netflix does break outs. Revenue is actually up this quarter against a flat sub count, as they raised rates.

The fourth segment Netflix breaks out is Europe/Middle East/Africa (EMEA)

Like America, there is a sub loss. But if you look at ARPU (or ARpM on the chart), America and Europe are really on a different planet of revenue than the rest of the world. $15.95 (UCAN) and $11.17 (EMEA) vs $8.83 (APAC) and $8.67 (LATAM). But all the growth is at the lower price points.

The “call” starts at 6p eastern, so there can be some richer detail on advertising then. But I suspect that the APAC and LATAM will be the first segments to get advertising options… perhaps for the entirety of 2023… maybe longer.

The Q1 or Q2 2023 results will be fascinating, as the focus shifts from subs to revenues in the markets with ads and the word “cannibalization” becomes a key part of every Netflix discussion.

If you take away all you think about Netflix and just look at the numbers…

… what do you see that is promising?

And keep in mind… Q3 2021 was a good quarter for the company. The stock was at $653 after the quarterly hit and was still on the way up. (It’s true!) If Netflix hits its numbers in Q3 2022, is that a stock on the way up?

Half a percent growth in memberships. Revenue down. Operating margin down. Net income down.

“Winning!!!!” (????)

If the U.S./Canada and Europe continue to lose subs quarterly, the history of the film exhibition business suggests that the rest of the world will follow in about 18 months. That is the scary part. But exhibition is a mature business and streaming is still early in its evolution. Netflix is by far the most mature, but getting dragged into advertising devalues some of their maturity as a subscription-only company. I don’t think that incremental changes will be major stories in perspective 5 years from now, whether the international business of ad-based streaming thrives or stumbles.

All that said, I think the stock price for Netflix is reasonable these days and that this quarter and, really, the rest of 2022 will be treading water. Netflix is in a good place to doggy paddle.

I have a 4p screening, so I will write about the investor’s “call” this evening. But I don’t expect I will feel compelled to write about Netflix anymore this week.

Until later…