Those are the words Netflix decided to use to describe its fiscal health across the three-month period ending June 30, as net income improved — as did net cash provided by operating activities.
Is this the much-needed shot in the arm that not only Netflix, but every OTT-based video transmission service, desires?
Net income increased to $1.44 billion ($3.20 per diluted share), from $1.35 billion ($2.97).
Positive cash flow of $12.73 million was seen, compared to negative cash flow of $175.04 million seen in Q2 2022, on a non-GAAP basis.
Total revenue grew to $7.97 billion from $7.34 billion.
So … all is well and not “Upside Down”? Nope. Operating income dipped to $1.58 billion from $1.85 billion.
Was that a big enough blemish to frustrate investors? Hardly, ahead of the Closing Bell on Wall Street, NFLX finished Tuesday’s trading up 10.7% to $201.63. In mid-morning trading on Wednesday (7/20), shares were up $9.68 a share to $211.37, its best performance since mid-April.
The big takeaway, however, isn’t higher income and revenue. Netflix lost fewer subscribers than expected in Q2.
That’s exactly what investors needed to avoid another stink bomb from Netflix.
What’s the forecast for Q3 2022? A declining value of the Euro against the U.S. Dollar is a major headwind. And, with 60% of the company’s revenue coming from international markets, this could be somewhat of a growth inhibitor.
That said, Netflix puts its Q3 revenue growth forecast at 5%, pushing the FY 2022 year-over-year revenue growth on a constant currency basis to 12%. “[E]xcluding the impact of currency, operating profit growth would be -3% year over year (vs our forecast decline of -29%) and operating margin would be 20% (vs our forecast of 16%),” Netflix said in an investor note released following Tuesday’s Closing Bell on Wall Street.
Meanwhile, Netflix bragged about its influence on pop culture. Thanks to Season Four of the science-fiction thriller Stranger Things, the fall 1985 Kate Bush single “Running Up that Hill” saw an unprecedented resurgence in popularity. This week, the song is No. 1 on Australia’s ARIA Top 40 and No. 2 in New Zealand; it already topped the Official Charts in the U.K., made the Top 5 in Germany and Los 40 México, and remains on the rise in the United States.
Lastly, Netflix’s Q2 ’22 shareholder letter shared its view of the share of U.S. television viewing by minutes viewed.
Netflix dominates.
DESPITE GOOD Q2, AN ANALYST WANTS A TRANSACTION
While investors largely cheered the Netflix second quarter results, Pivotal Research Group Principal and Internet/Media/Communications Analyst Jeffrey Wlodarczak was hardly kind to Netflix.
He reviewed the “mixed” results and guidance, and this led him to reduce his year-end price target to $175 per share. And, Wlodarczak reiterated his “Sell” recommendation as Q3 2022 forecasts for North America remain sour for the OTT leader.
He didn’t stop there. Wlodarczak also wants Netflix to engage in a transaction that would sell the operation in its entirety.
“In our view, the most prudent move for Netflix management is actually to look to sell the company with recent advertising partner Microsoft, which lacks a streaming product, [its] most logical partner,” he shared in an investor note. “The biggest quite substantial issue is regulatory approval, but a potential change to a Republican administration in 2024 could open the door to a sale as early as 2025.”
While a potential deal in three years could invigorate investors, Wlodarczak does not view this possible acquisition “as a credible reason to buy the stock at current levels.”
