Netflix shares fell 9% after hours Thursday after the streaming giant issued third-quarter revenue guidance that fell short of Wall Street estimates, overshadowing a second quarter that delivered record sales. The company reported second-quarter revenue of $12.56 billion, a 13% increase from a year earlier and a quarterly record. GAAP net income rose nearly 9% to just over $3.4 billion, or $0.80 per share. Both figures came in roughly in line with analyst expectations of $12.58 billion in revenue and $0.79 per share.
Netflix attributed the growth to a combination of price increases across all three subscription tiers implemented in late March, a rise in total memberships, and higher advertising revenue. The company said the gains were broad based, with every region contributing. Europe, the Middle East and Africa generated $4 billion in revenue, also a quarterly record, while Latin America produced nearly $1.6 billion and Asia Pacific just over $1.5 billion.
The selloff stemmed from the forward view. For the current third quarter, Netflix forecast revenue of $12.86 billion, implying roughly 12% year-over-year growth, and net income of $3.45 billion, or $0.82 per share. Analysts had been modeling $13 billion in revenue and $0.84 per share. The company also narrowed its full-year revenue range to $51 billion to $51.4 billion from a previous $50.7 billion to $51.7 billion.
The projected profit jump of 36% in the third quarter is flattered by a $619 million tax charge related to Brazil operations that depressed the year-ago comparison. Even so, the guidance shortfall, however modest, reinforced a market narrative that Netflix is struggling to deliver the kind of upside investors have come to expect from a market leader facing intensifying competition and a failed pursuit of Warner Bros. Discovery.
Management signaled it will stick with its three-pronged strategy of expanding content quality and variety, using technology to deepen engagement, and extracting more revenue from advertising and pricing. The next test will be whether the advertising tier can scale fast enough to offset slowing subscriber growth in mature markets, and whether the company can sustain pricing power without triggering churn.