There’s A Lot Of Things Not To Like In The Netflix Q2 Earnings Report

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Netflix earnings numbers are always highlighly anticipated by media industry analysts and investors, given its size and influence in the streaming television business.

But this Q2 2026 earnings report was especially important because it came at the end of a couple of weeks of bad press, including a discussion about whether or not audience engagement numbers are dropping at the streamer.

And when the company released its 8-K form on Thursday, ahead of a conference call discussing the numbers by Netflix executives, the earnings numbers had a lot of things to worry about if you are an investor in the company.

If reading the 8-K was a drinking game in which you did a shot every time the document mentioned “engagement,” you’d be drunk before you got halfway through the 20-page document.

Netflix wants you to know that despite the press reports, their subscriber engagement numbers are just peachy:

We’re delivering increasing value to our members; engagement is healthy, reflecting the quality, quantity, and variety of our offering...View hours grew +2% in H1’26 vs. +1.5% growth in 2025, despite the competitive impact of the Winter Olympics and the World Cup this year.

Netflix is also arguing that while engagement numbers are important, there are other metrics that are as or more important when it comes to judging the overall success of the company:

We’ve used “engagement” as a shorthand for the value we deliver members. But, as we’ve developed an increasingly sophisticated understanding of how consumers ascribe value to our service, we know not all hours are equal. Time spent is just one aspect of strong engagement - quality and variety also matter. The key is to improve across all of those dimensions: quality, variety, and quantity.

I’m not convinced that the argument “sure, engagement is an issue, but have a lot of titles people like” is a winning approach. Especially at the same time in which the streamer announced that next year, it will release the “What We Watched” report on an annual basis only. That report tracks viewing numbers and engagement on Netflix.

There were some interesting data points mentioned in the 8-K, although there wasn’t much provided in the way of context:

For instance, approximately half of our viewing occurs in the evening, but our recently launched video podcasts over-index on viewing during the day and on mobile devices, an indicator that this engagement is incremental.

Presumably, the other half of Netflix’s viewing occurs in the daytime hours. And what exactly does “over-index” mean when discussing am initiative which is still being rolled out?

Also, this video podcasts initiative has been partially limited to more mature markets such as North America, the UK, Europe and Australia. So how do engagement numbers in the territories with podcasts compare to those places where subscribers don’t have access? What do the financials for the video podcast deals look like? How long do the deals last?

But let’s not forget engagement:

Overall, our engagement remains healthy and as with all things we do, we’re working hard to improve every day.

And in fact, during a call company executives held with analysts and reporters after the 8-K was released, Co-CEO Ted Sarandos argued that engagement issues were “very common” in the industry (something I wrote about earlier in the week) and he also said that Netflix’s engagement numbers have recently improved somewhat:

“We are not seeing any material change in our second season viewing compared to season ones, our second seasons are performing well within our bands of expectation. Very often we see drop off from season one to season two. It’s very common in the industry, but it’s even more so with us because we launch our shows so big. When we look across the entire portfolio, across all the regions, all the content categories, our season two fall off is actually slightly improved this year relative to last year. Now, of course, you can pick any five data points to tell any story you want, but I’m going to repeat this: our season two fall off is actually slightly improved this year relative to last year.”

As for live events, the news is mixed for Netflix. Company executives noted that live events accounted for six of the top 10 new member sign-up days over the past five years. Which makes sense given that in mature markets, most likely subscribers have already joined. So live events provides a unique entry point for more reluctant subscribers.

Still, Netflix noted that while live programming accounts for more than 5% of its content spending, it makes up only about 1% of viewing hours.

However, the biggest challenge for investors and analysts is that the decision by Netflix to report engagement numbers less frequently only adds to the list of basic financial and strategic metrics that aren’t being reported anymore by the company. Or other companies in the streaming sector, to be fair.

As I wrote about in my Too Much TV newsletter after Netflix’s Q1 2026 report, it’s almost impossible to determine the success or failure of strategy at the company given the lack of details that would be reported by companies in other industries.

While Netflix likes to focus on revenue, it’s more important to be able to figure out where that revenue comes from and what a company has to do in order to generate it. And the standard across most industries is what is called the CLV - customer lifetime value. Which is the average amount of revenue each new and current customer is expected to generate over the life of their subscription.

The simple formula for CLV looks like this:

Customer Lifetime Value (CLV) = (ARPA × Gross Margin)÷ Churn Rate

Which means that you calculate the CLV by average revenue per account, times the gross margin, divided by the average subscriber churn rate.

And we don’t have any of those numbers. The scant top-line information Netflix provides is broken down by territory. And that means countries with higher ARPAs are combined with countries with much lower ARPAs and then averaged across the territory.

There is no way to know what strategies are successful or where weaknesses might be bubbling up.

I have been covering Netflix since it was a one-DVD warehouse in the SF Bay area. I have been supportive of a lot of the decisions made by the company over the years. But it is uniquely frustrating to cover a company what ends up making me feel as if I’m trying to cover the decisions of the Wizard Of Oz while he’s hiding behind billows of smoke and a giant curtain.

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