Netflix (NFLX:NASDAQ) shares were marginally lower at $643 in pre-market trading despite the global streaming giant reporting a 16.8% rise in second-quarter revenue to $9.56 billion and adding over eight million paying subscribers.

Netflix now has a total of 277.65 million global streaming paid memberships, more than analysts had anticipated.

Quality content like Baby Reindeer, a new season of Bridgerton and shark extravaganza Under Paris proved to be big hits with new and existing Netflix customers.

LOWER GUIDANCE

The initial dip in the shares at the time of the earnings announcement came as Netflix lowered third quarter revenue estimates to $9.73 billion, missing analysts’ estimates of $9.83 billion.

Dan Coatsworth, investment analyst at AJ Bell said: ‘Despite big wins across many metrics, the results weren’t impressive enough to trigger a new rally in the stock.

‘It has guided for third quarter net subscriber growth to be lower than a year earlier, a period which was boosted by a clampdown on account sharing and which led to more people signing up. Free cash flow over the past quarter was also weaker than expected.

‘These factors gave the market something to grumble about and led to a dip in the share price in after-hours trading shortly after the results were published.’

Netflix shares have gained 37% year-to-date.

ROLE OF ARTIFICIAL INTELLIGENCE

Netflix co-chief executives highlighted the potential use of AI in content streaming services in the future.

Co-CEO Greg Peters said Netflix had already been using machine learning and AI to make content recommendations for customers which can be enhanced further with generative AI.

Technology analyst Ben Barringer technology at Quilter Cheviot said: ‘While it is early days yet, one can certainly argue that Netflix’s move into a cheaper, ad-supported model is paying dividends following a very good latest set of results. Subscription numbers are growing, and crucially new users have optionality when it comes to choosing a plan that works for them.

‘This new ad-supported model is also presenting new opportunities for the business as it looks to bring the advertising platform in house. Clearly this will be very good from a margin perspective, but it will also give Netflix more control over what adverts customers see and thus can be better targeted.

‘Given Netflix does not need to convert the advertising service subscriptions into full fat paid ones, there is a clear runway for future growth at the company.’

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DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Martin Gamble) own shares in AJ Bell. 

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