Netflix Boosts Audience But Profit Misses Mark

Netflix on Tuesday topped revenue and subscriber expectations but shares dipped as the leader in streaming television fell short on profit in the recently ended quarter.

The global streaming giant said that it ended the second quarter with 209 million paid subscribers and revenue of $7.3 billion, some 19 percent higher than the same period a year earlier.

Profit was reported at $1.35 billion as compared to $1.7 billion in the preceding quarter. The net income figure missed market expectations.

The market also took note that Netflix predicted less growth in the current quarter than analysts had projected.

Netflix subscriber growth coming in below expectations is "not as bad as it sounds" given the track it is on, Loop Ventures manager partner Gene Munster said in a tweet.

"Covid has created some lumpiness in our membership growth (higher growth in 2020, slower growth this year), which is working its way through," Netflix said in an earnings release.

Netflix shares slipped some three percent in after-market trades that followed release of the earnings figures.

The streaming leader said the pandemic "has created unusual choppiness" in its results after strong growth last year which has now subsided.

Netflix said it is continuing to invest in content as production recovers from pandemic-caused delays, and that it is "in the early stages of expanding into games."

"We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV," Netflix said.

"Games will be included in members' Netflix subscription at no additional cost similar to films and series."

Netflix seems to have reached a saturation point in the United States in terms of reaching households, but has been able to raise prices and increase revenue here, according to eMarketer senior forecasting analyst Eric Haggstrom.

"Expansions into video games, audio and merchandise may drive some incremental growth, but ultimately growth in subscribers and revenue should be much lower than in the past," Haggstrom said.

"Netflix is now the large incumbent to beat in streaming."

Netflix recently recruited a video game veteran from Facebook to lead a gaming team at the television star

Mike Verdu was hired to take charge of video game development at the Silicon Valley company, which has openly called hits such as "Fortnite" competition for people's online entertainment time.

Netflix has played with games before, releasing an interactive "Bandersnatch" episode of original series "Black Mirror" and also a free mobile game spinning off its hit "Stranger Things" shows.

The company has slowly added video game talent, but Verdu is a high-profile recruitment that could signal ramped up plans.

With the global gaming market now exceeding $300 billion, according to an April study by consulting firm Accenture, Netflix's move would open a new and highly lucrative stream of revenue for the tech giant.

"Mobile will be first and included in the Netflix subscription," Munster said in a tweet.

"Smart move to retain and inch up paid subscriptions. Overall there are about 2B global monthly gamers."

Netflix chief executive Reed Hastings has repeatedly emphasized that the company's main competitors are not just other big-name streamers like HBO, Hulu or Disney+ but include a variety of other online and mobile entertainment platforms.

"In the race to entertain consumers around the world, we continue to compete for screen time with a broad set of firms like YouTube, Epic Games and TikTok (to name just a few)," Netflix said in the earnings release.

Netflix pointed to Amazon's pending purchase of storied MGM studios for $8.45 billion as indicator of consolidation in the industry, but did not expect it to hamper growth of the streaming television service.