On Thursday, Netflix released its second quarter earnings, which were in line with expectations from most financial analysts. However, the trading price of NFLX shares declined significantly based on lower projected revenues for Q3 and a decline in “user engagement”, confirming themes that have been circulating in negative headlines for weeks.
In their earnings call with investors, Netflix executives downplayed the significance of concerns about declines in engagement. Netflix Co-CEO Ted Sarandos described the level of engagement as “healthy” and pointed to their live events as having an outsized impact compared to viewing one of their library titles. “Not all hours are created equal” said Co-CEO Greg Peters, arguing that live events have an outsized ability to bring new subscribers and ad revenue and its impact is not captured in hours of viewership. They also pointed toward the doubling in quarterly ad revenue year-over-year to $3 billion. Analysts were unconvinced, with one characterizing the report as a “win for the bears” and the company share price declining by more than 10% by the end of the week.
Netflix also announced that the frequency of releasing a “What We Watched” engagement report will be spaced out to once per year, instead of the current twice per year cadence. This pullback in transparency could point to a fundamental issue with audience viewership. In light of these developments, many are wondering what steps Netflix may take to change the gloomy narrative before it takes hold.
