Netflix (NFLX) said accelerating growth is its "primary objective" after the streaming giant saw its second quarter sales and third quarter revenue projection miss consensus estimates.
But the company suggested that growth would take time, concerns that helped drive the stock down Thursday more than 8%.
"The key is that we delivered revenue in line in Q2 with our expectations, and we're on track to accelerate that revenue in Q3 and further accelerate it in Q4," Netflix CFO Spencer Neumann said on the earnings call following Wednesday's results. "That's really our primary objective around revenue acceleration, and we're set to deliver on it."
Neumann said revenue growth will be driven by a combination of pricing, volume, and new revenue streams like ads — but that those initiatives will take time to mature. Just ahead of the results, the company quietly removed its lowest-priced ad-free streaming plan in the US.
Netflix rolled out its ad-based offering in November at a price point of $6.99. Neumann said on the call that ad revenue is not "expected to be a big contributor this year" and that he expected a "gradual" build.
Overall, Netflix added a whopping 5.89 million net subscribers in Q2 — well ahead of estimates of 2.1 million. The gains were largely due to the crackdown on password sharing, otherwise known as the paid sharing rollout, which rolled out in the US in late May.
"Most of our revenue growth this year is from growth in volume through new paid memberships, and that's largely driven by our paid sharing rollout. It is our primary revenue accelerator in the year and we expect that impact to build over several quarters," he continued, adding average revenue per membership, or ARM, should also improve over time as revenue expands.
Analysts still bullish: 'Patience is a virtue'
Analysts remained confident in the company's strategy despite the post-earnings stock decline.
"Patience is a virtue," Wells Fargo analyst Steve Cahall wrote on Thursday. "Investors were over-exuberant on paid sharing, and while revenue acceleration will take longer we think it creates an entry point for patient, longterm investors. Price increases and margins are ahead. We maintain our $500 target, Overweight rating."
Wedbush analysts Alicia Reese and Michael Pachter agreed, writing in a note to clients on Thursday, "The sharing crackdown and ad-tier have only begun to positively impact results."
The analysts maintained their Outperform rating on the stock and increased their price target to $525 a share, up from the prior $475.
"We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company," the analysts said. "One of the most important takeaways from Q2 results is that Netflix remains laser focused on increasing profitability and free cash flow."
Tim Nollen, Macquarie senior media tech analyst, maintained his Neutral rating and $410 price target, explaining the share price reaction was the result of heightened sentiment heading into the print:"We think the stock basically got ahead of itself into this report."
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected].
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