Netflix bolstered its marketing spend in the second quarter of 2021, to $604m (£443m) – the most it has spent on promotion in Q2 in the past few years and a figure eclipsed only by spend during the busy Christmas period.
The streaming service announced a 19% annual lift in revenue and a 36% jump in operating profit for its second quarter, led by significant growth in the Asia-Pacific region.
In the three months to June 30, revenue was $7.34bn, up 2.5% from $7.16bn in the prior quarter, and up 19% year on year. Operating income was $1.85bn, up 36% year on year.
Net income witnessed an even greater jump, up 88% to $1.35bn, from $720m the year prior.
Cost of revenues rose to $4.02bn in the quarter, up by 10% year on year, as Netflix spent more on marketing, technology and development, and administrative costs.
Technology and development costs rose 24% year on year to $537m—the company's highest quarterly spend in recent years.
General and administrative costs increased 21% to $335m. Regional breakdown Netflix said its Q2 revenue growth came from an 11% increase in average paid memberships, the majority of which came from APAC, and an 8% growth in average revenue per membership.
The APAC region witnessed by far the biggest annual revenue jump, up 40% year on year to $799m. It was followed by EMEA, which reported $2.4bn in revenue, up 27%, and US and Canada, which reported $3.23bn, up 14% year on year.
Latin America brought in the lowest annual revenue increase of 10% to $861m. The US and Canada continues to be Netflix's biggest region, accounting for 44% of total revenue in the quarter. But it was the only region to lose paid members. While it lost 433,000 paid members in the quarter, APAC added 1.02 million members, LATAM added 764,000 and EMEA added 188,000. APAC accounted for two-thirds (66%) of net paid membership additions in the quarter.
In an earnings call with investors, Netflix chief financial officer Spence Neumann claimed the company is "roughly 10% penetrated" in the APAC region—with plenty of headroom for growth. Netflix has adapted its pricing strategy as it seeks to capture growth in lower-income markets.
It introduced a cheaper, mobile-only plan in India in July 2019 and rolled it out to 78 countries this quarter, including many markets in APAC, chief operating officer and chief product officer Greg Peters said on the call.
He added that the company is trying to figure out how to seek broader reach without cannibalising revenues. He said: "Very much what we're trying to do is, as we bring in lower price-plan offerings that decrease average revenue per member, we're also thinking about that from the calculus of expanding the funnel in a way that delivers total net positive revenue."
Meanwhile, EMEA reported the biggest lift in average revenue per membership (ARM), a key measure for Netflix. EMEA's ARM rose 11% year on year to $11.66, the US and Canada's ARM followed with a 10% year-on-year lift to $14.54, and APAC's ARM was up 9% year on year to $9.74. LATAM reported a marginal gain of 1% year on year to just $7.50 – much lower than other regions.