Despite strong subscriber growth in APAC, Netflix struggles to grow per user revenue

Despite gaining millions of new subscribers in Asia-Pacific over the past three months, video streaming service Netflix struggled to squeeze more revenue for these users in the second quarter of its financial year. According to its latest filings, the company, which crossed a billion dollars in operating profit for the quarter worldwide, saw its average monthly revenue per user fall 4% (in constant currency terms a 1% decline), in a cut-throat market that saw the beginnings of consolidation and aggressive price cuts to lure new subscribers. 

In terms of overall numbers, Netflix showed sharp growth in APAC. Its revenues were up to $569 million for the quarter compared to $349 million in the corresponding quarter in the previous financial year. The firm doesn't break down its profits by region. User numbers spiked too, from 12.94 million to 22.49 million. Overall, Netflix added just over 10 million subscribers this quarter.

In a note to investors, APAC was also mentioned for two other reasons. First the region led the restart of production, with work actually never stopping in markets such as Korea and shooting underway for a live action series like season 2 of its Japanese original The Naked Director. Elsewhere, TikTok's red-hot growth was noted in observations about the competition.

"All of the major entertainment companies like WarnerMedia, Disney and NBCUniversal are pushing their own streaming services and two of the most valuable companies in the world, Apple and Amazon, are growing their investment in premium content," the company stated. "In addition, TikTok’s growth is astounding, showing the fluidity of internet entertainment." 

Worldwide, the company's revenue for the second quarter was at $6.15 billion, up from the $4.92 billion it registered in the corresponding quarter last fiscal. Operating income increased to $1.35 billion versus $706.41 million. As marketing budgets were cut, revenue from marketing was down to $434 million in Q2 2020 compared to $603 million in the corresponding quarter last year. 

The company's share price in after hours trading dived over 10% due to tepid financial forecasts. It predicts $6.33 billion in revenue and operating profit of $1.25 billion and net income of $954 million, while adding just 2.5 million subscribers.  "In the first half of this year, we’ve added 26m paid memberships, nearly on par with the 28m we achieved in all of 2019," the investor note stated. "However, as we expected (and can be seen in the graph below), growth is slowing as consumers get through the initial shock of Covid and social restrictions." 

Ted Sarandos, Netflix's new co-CEO

In the second quarter of the financial year, the company also shuffled the chairs of its top management. Ted Sarandos, Netflix's long-time content chief, was promoted to co-CEO with co-founder and current chief executive Reed Hastings. Sarandos will continue as the company’s chief content officer, and he’s joining the board of directors too. Chief product officer Greg Peters is, meanwhile, taking on the additional role of chief operating officer.