Netflix Q2 - Double beat

On Thursday evening, Netflix released good-looking results which beat both revenue and earnings guidance. Most importantly they smashed net paid subscriber estimates of 4.7 million. The actual number came in at 8.1 million new subscribers, which is just phenomenal given that some think that the streaming industry is now ex-growth. Global subs have risen to an eye-popping 278 million.

This business has matured and is making some solid profits. Net income was $2.15 billion for the quarter, with operating margins of 27%. The only real negative was forward guidance for subscribers, which they think will slow down next quarter as the tailwind of their password sharing clamp-down starts to fade.

The company is not sitting still. Their content creation machine is still churning out hits. They have launched a beta version of a new TV homepage in order to maintain their lead in show recommendations. The advertising business is also growing nicely; 45% of all new sign-ups are opting into the ad tier. They have great infrastructure and algorithms to recommend the right shows, I am sure they can do the same with adverts.

All this innovation, along with a consistent flow of good content, has resulted in the ultimate compliment, an increased engagement of existing subscribers. They also seem to be growing in the right regions, India was their second biggest country for paid net additions.

Netflix is a well run business operating in a very competitive sector. We are holders of the stock.