Despite modest revenue growth, Netflix reported 5.9 million net new subscribers for the second quarter of 2023. This represents subscriber growth of 8% year-over-year and is more than three times the 1.75 million net new subscribers Netflix added during the first quarter of this year. The streaming giant now has 238.4 million paid subscribers worldwide.

Many speculated Netflix would lose subscribers and non-paying viewers as a result of the password-sharing crackdown, but Netflix is seeing subscriber growth instead. The streamer said they have rolled out password sharing to more than 100 countries to date, with more to come, and revenue is higher in each region than it was prior to the implementation of the new rules. The company said sign-ups exceed cancellations.

On the revenue side, Netflix reported total revenue of $8.2 billion, a 2.7% increase year-over-year, and net income of $1.5 billion, or $3.29 diluted earnings per share. This was consistent with Netflix’s internal projections. In their shareholder letter, they said they expect growth to continue to accelerate over the balance of the year as they continue rolling out password-sharing options and the ad-supported plan gains momentum with new subscribers.

“While we’ve made steady progress this year, we have more to do to accelerate our growth. We remain focused on: creating a steady drumbeat of must watch shows and movies; improving monetization; growing the enjoyment of our games; and investing to improve our service for members,” Netflix said in its July 19, 2023 shareholder letter.

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Subscriber growth and engagement

One of the keys to Netflix’s success is subscriber engagement which helps the company measure satisfaction and ultimately retention. This includes having a wide variety of quality content that appeals to different tastes and cultures.

“We’re often asked, ‘What is a Netflix show?’ The answer is one that super serves the audience, leaving them highly satisfied and excited for more,” Netflix said. “…if you aspire to serve hundreds of millions of people around the world, you can’t program for one set of tastes or sensibilities. You need to invest across genres, cultures and languages.”

In June, the company changed their Netflix Top 10 which shows weekly engagement for top shows and movies in 93 countries. The titles are based on the number of views (total hours viewed divided by the runtime). Here are the 10 all-time most popular TV seasons and films on Netflix.

Monetization and revenue

In their shareholder letter, Netflix addressed monetization. They adjust and evolve their model as needed to maximize monetization and revenue opportunities. This includes pricing changes; the new, lower-priced, ad-supported tier; and password-sharing. It also includes a recent change in the US and Canada. The cheapest, ad-free plan – previously offered at $9.99 a month – is no longer available to new subscribers. New subscribers who want an ad-free plan will start at $15.49 a month.

Third quarter projections

Netflix offered the following forecast for the third quarter:

• Revenue of $8.5 billion, representing 7.5% growth
• Operating income of $1.89 billion
• Operating margin of 22.2%, compared to 22.3% in Q2
• Net income of $1.58 billion, or $3.52 diluted earnings per share

There was some uncertainty about how password-sharing would impact the company’s bottom line.

“Now that we’ve launched paid sharing broadly, we have increased confidence in our financial outlook,” the company said.

The company did not estimate subscriber growth for the third quarter.

Insider Take

Netflix has been on a wild ride the last couple of years with investors bailing when growth leveled off after the pandemic. The company tried different pricing and product strategies, and they continue to test new ideas, something we recommend all subscription companies do. Industry experts and the media were quick to say that Netflix was a sinking ship when they rightsized, but we believed all along that they’d get it right. Netflix knows their business, they know content, and they know what their subscribers want. They also know what’s profitable and how to get there. There may be some missteps along the way – a pop-up restaurant? – but we think Netflix is still the streamer to beat.

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