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Netflix's growth slows down in 2021, adds just 1.5m subs in Q2

The streaming giant eyes foray into video gaming to push growth.

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New Delhi: After a meteoric rise in 2020, the US-based streaming giant Netflix's subscriber growth in early 2021 has slowed down. According to the company's latest financial results, the OTT platform has added just 1.5 million subscribers, compared to 10.1 million new sign-ins it reported during the same period last year.

Netflix, thus ended the quarter with 209 million paid memberships.

The APAC region represented about two-thirds of the global paid net adds in the quarter. However, its Q2 paid memberships in the US and Canada region were slightly down sequentially, as it lost 0.4 million paid memberships in the region. "We believe our large membership base in UCAN coupled with a seasonally smaller quarter for acquisition is the main reason for this dynamic", said Netflix.

In Q2, revenue increased 19 per cent year over year to $7.3 billion, while operating income rose 36 per cent year over year to $1.8 billion. Revenue growth was driven by an 11 per cent increase in average paid streaming memberships and 8 per cent growth in average revenue per membership (ARM).

According to the company, Covid has created some lumpiness in the membership growth.

"We finished the quarter with over 209m paid memberships, slightly ahead of our forecast. 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. In Q2’21, our engagement per member household was, as expected, down vs. those unprecedented levels but was still up 17 per cent compared with a more comparable Q2’19," said Netflix on Wednesday.

Netflix chief financial officer, Spencer Neumann said, "We had the kind of big pull forward in 2020 of subscriber adds. We also had to push in production of some of our kind of key returning titles and big tent-pole new releases until the latter part of the year. But overall, the business is performing well. Our churn is actually down relative to the more comparable two-year-ago period in 2019, Q2 of '19 before Covid."

For Q3 '21, the company forecast paid net additions of 3.5m vs. 2.2m in the prior-year period. "If we achieve our forecast, we will have added more than 54m paid net adds over the past 24 months or 27m on an annualised basis over that period, which is consistent with our pre-Covid annual rate of net additions. We forecast that ARM will grow roughly 5 per cent year over year on a FX neutral basis in Q3’21," said Netflix.

As the streaming war heats up, Netflix said it continues to target a 20 per cent operating margin for the full year 2021 vs. 18 per cent in 2020. "After our big global launch in January 2016, we committed to steadily growing our operating margin thereafter at an average rate of three percentage points per year over any few-year period. Some years we’ll be a little over (like in 2020), some years a little under (like in 2021). Assuming we achieve our margin target this year, we will have quintupled our operating margin in the last five years and are tracking ahead of this average annual three percentage point pace," it stated on Wednesday.

Netflix is also shifting focus to growing its live action and animated original film offering, with several impactful titles in Q2. Its non-English content investments are also growing both in scope and impact. “Our P&L content expense for this content category has more than doubled in the past two years,” it added.

The company is also in the early stages of further expanding into games, building on its earlier efforts around interactivity (eg, Black Mirror Bandersnatch) and Stranger Things games.

“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV. Games will be included in members’ Netflix subscription at no additional cost similar to films and series. Initially, we’ll be primarily focused on games for mobile devices. We’re excited as ever about our movies and TV series offering and we expect a long runway of increasing investment and growth across all of our existing content categories, but since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games,” it added.

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