Following a strong 2020 fueled by pandemic-related membership growth, Netflix finished the second quarter of 2021 with revenue of US$7.3 billion and 209 million paid memberships, slightly higher than forecast.
The streaming giant’s Q2 revenue was up 19% year-over-year, rising from $6.15 billion in the same period a year earlier and $7.16 billion in Q1 of this year. Netflix forecasts its Q3 revenue to reach $7.48 billion.
Blaming the pandemic for “lumpiness” in its membership growth (which soared in the early days of COVID-19 lockdowns), Netflix has seen slower growth in 2021. While the streaming giant added 1.5 million paid memberships in Q2, slightly beating its forecast of 1 million, about two-thirds of that came from the Asia-Pacific region as paid memberships in the U.S./Canada region slipped by 430,000 from Q1. The company attributed the loss to an already large membership base in the region as well as “a seasonally smaller quarter for acquisition.”
The company also said it has already spent $8 billion on content in the first half of 2021, an increase of 41% YOY.
The streamer is forecasting paid net additions of 3.5 million in Q3, up from 2.2 million in the year-earlier period, a goal that, if reached, will mean Netflix has added 54 million paid memberships over the past 24 months, which the company says is consistent with its pre-COVID rate.
Netflix’s revenue growth was powered by an 11% increase in average paid memberships and an 8% uptick in average revenue per membership (ARM), which the company cites as proof that its viewers value the service.
“The pandemic has created unusual choppiness in our growth and distorts year-over-year comparisons as acquisition and engagement per member household spiked in the early months of COVID,” the company said in its letter to shareholders Wednesday (July 21). “In Q2’21, our engagement per member household was, as expected, down vs. those unprecedented levels but was still up 17% compared with a more comparable Q2’19. Similarly, retention continues to be strong and better than pre-COVID Q2’19 levels, even as average revenue per membership has grown 8% over this two-year period, demonstrating how much our members value Netflix and that as we improve our service we can charge a bit more.”
The company also reminded shareholders that the transition to streaming on demand is still an ongoing process.
“We are still very much in the early days of the transition from linear to on-demand consumption of entertainment. Streaming represents just 27% of U.S. TV screen time, compared with 63% for linear television, according to Nielsen. Based on this same study, Nielsen estimates that we are just 7% of U.S. TV screen time,” the letter reads. “Considering that we are less mature in other countries and that this excludes mobile screens (where we believe our share of engagement is even lower), we are confident that we have a long runway for growth. As we improve our service, our goal is to continue to increase our share of screen time in the US and around the world.”
Netflix also mentioned the success of its unscripted content, including new seasons of hits like the dating show Too Hot to Handle and the social experiment The Circle, as well as the true crime miniseries The Sons of Sam. The company said it will launch Too Hot to Handle: Brazil and Too Hot to Handle: Latino to serve the LATAM region in July and September, respectively.
The company noted that it considers its competitors for user attention to be YouTube, TikTok and Fortnite creator Epic Games, while announcing plans to expand into the video game business.