Netflix (NASDAQ: NFLX) reported impressive Q2 results, with revenue and profits both exceeding market expectations, prompting the company to raise its full-year forecast. However, the already high expectations from the market resulted in a stock price decline of over 4% after the earnings report was released. Netflix's Q2 revenue reached $11.08 billion, a year-on-year increase of 17.3%, slightly higher than the company's estimate of $11.04 billion. Earnings per share (EPS) were $7.19, exceeding the expected $7.03 and far surpassing last year's $4.88.
Netflix's Q2 earnings report is impressive, with a price-to-earnings ratio of about 40 times.
Netflix has raised its full-year revenue forecast for 2025 to between $44.8 billion and $45.2 billion, higher than the previously estimated $43.5 billion to $44.5 billion. Netflix stated that this revision mainly reflects a weaker dollar, subscriber growth, and a continued rise in advertising business.
Despite strong performance, investors have not shown enthusiasm. William Blair analyst Ralph Schackart stated that Netflix's performance is good but difficult to exceed the high expectations that the market has set. The company's stock price has risen over 42% this year, with a price-to-earnings ratio of about 40 times, far above the market level. Despite a good financial report, the reason for Netflix's stock price not performing better but instead declining could be the poor reviews for Squid Game's third season? The following is an analytical report, purely market observation, not any investment advice.
Did the poor audience ratings for Squid Game's third season lead to a decline in stock price?
In terms of content, Squid Game's third season officially launched and set a record of over 150 million hours of viewing in its first week, once again taking the top spot in Netflix's global non-English series rankings. However, despite the impressive viewership data, audience reviews did not reach the levels of the previous two seasons and could even be described as overwhelmingly negative.
According to multiple review platforms, Squid Game's third season has faced criticism for its innovation in plot and character development, with many viewers stating that the pacing is slow, repetitive of previous works, and lacks surprises. Some critics believe this season is more like a reproduction of a successful formula rather than a breakthrough, leading to many negative comments on social media. Viewers heavily criticized the plot for containing too many lengthy subplots and implausible storylines. In particular, the plot twist of 'the baby becoming the winner' was strongly questioned, with some comments stating that it was 'childish and illogical'. However, despite mixed reviews, the show still effectively boosted user engagement and stickiness on the platform. Co-CEO Greg Peters stated that overall user stickiness is good, and retention rates remain industry-leading.
Growth in the advertising business brings in revenue.
Netflix continues to develop its ad-supported plan, with more than 94 million users subscribing to the built-in ad package priced at $7.99 per month, a significant increase from 70 million in November last year. The company expects advertising revenue to reach $3 billion by 2025.
In addition, Netflix's content for the second half of the year will be quite rich, including new seasons of 'Wednesday' and 'Stranger Things', as well as an increase in live sports events and entertainment content, such as NFL Christmas games, WWE Raw, and the anticipated introduction of UFC events, further enhancing the platform's advantages.
Netflix is expected to significantly increase its content and marketing spending in the third and fourth quarters, but remains optimistic that profits will grow year-on-year, with an annual growth of 30%, higher than the originally expected 29%. Nevertheless, the market is still concerned about whether it can maintain profitability amid rising costs and continue to drive user growth and revenue expansion.
This article discusses whether the poor audience ratings for Netflix's Squid Game's third season caused a decline in its stock price? It first appeared in Chain News ABMedia.
