Netflix (NFLX 0.36%) stock dropped by 8.1% in after-hours trading on Wednesday following the release of its second-quarter results. That sell-off can be attributed to investors' disappointment that the company missed Wall Street's consensus revenue expectation, and that its third-quarter revenue guidance came in weaker than analysts had been anticipating. 

On the positive side, the video streaming leader's earnings easily exceeded analysts' consensus estimate, as did Q3 bottom-line guidance. And paid net subscriber additions crushed the Street's expectation.

Here's an overview of Netflix's second-quarter results and third-quarter guidance, centered on six key metric categories.

1. Revenue grew by 2.7%

In Q2, Netflix's revenue grew by 2.7% year over year (and 6% in constant currency) to $8.19 billion. This result missed the $8.29 billion Wall Street consensus estimate, as well as the company's own guidance of $8.24 billion. 

Revenue growth was driven by a 6% increase in average paid subscriptions, offset by a 3% decline in average revenue per subscription. In constant currency, the latter number edged down just 1%.

2. Paid subscribers jumped by nearly 6 million 

In Q2, the company added 5.89 million paid net subscribers, racing ahead of the 2.1 million Wall Street estimate. This was a huge improvement over the year-ago period, when the company lost about 970,000 subscribers. Netflix ended the quarter with 238.39 million global paid subscribers, up 8% year over year.

Drivers of that substantial growth included the company's launch of a lower-priced, ad-supported subscription tier in Q4 2022, and the rollout of paid sharing in the bulk of its markets on May 23. The latter launched in tandem with the company's crackdown on subscribers sharing their Netflix passwords with people outside of their immediate households.

Netflix added paid net subscribers in all four of its regions: 

  • U.S. and Canada (UCAN) -- added about 1.17 million
  • Europe, Middle East, and Africa (EMEA) -- added about 2.43 million
  • Latin America (LATAM) -- added about 1.22 million 
  • Asia Pacific (APAC) -- added about 1.07 million

3. Operating income increased by 16%

Operating income grew 16% year over year in the quarter to $1.83 billion, which lifted its operating margin (operating income divided by revenue) to 22.3% from 19.8% in the year-ago period. 

Those results were better than management's forecast, which was for operating income of $1.57 billion and an operating margin of 19%. Management attributed the stronger-than-anticipated results to ongoing expense management, slower-than-projected employee growth, and the timing of content spending.

4. Earnings per share rose by 2.8%

Net income was $1.49 billion, or $3.29 per share, up 2.8% from the year-ago period. This result comfortably beat the earnings per share of $2.85 that analysts had expected. It also topped the company's guidance for $2.84 per share. 

5. Cash flow from operations grew nearly 14-fold

Cash generated from operations surged 1,298% year over year to $1.44 billion. Free cash flow was $1.34 billion, up from $13 million in the year-ago period.

Netflix ended the quarter with $8.6 billion in cash and short-term investments and $14.1 billion in long-term debt.

6. Revenue is expected to increase by 7.5% in the third quarter

For Q3, management guided for:

  • Revenue of $8.52 billion, which would equate to growth of 7.5% year over year. This outlook fell short of analysts' consensus expectation of $8.68 billion.
  • Operating income of $1.89 billion, or 23% growth year over year, and an operating margin of 22.2%, compared with 19.3% in the year-ago quarter. 
  • Earnings per share of $3.52, which would equate to growth of 14% year over year. This outlook exceeded the $3.25 per share consensus estimate.

A decent quarter, and the second half is forecast to be brighter   

Given the intense competition in the streaming space, Netflix had a relatively decent quarter, with subscriber growth and cash flows providing the bright spots in the report.

The good news for investors is that management expects revenue growth to accelerate in the second half of the year as the company starts "to see the full benefits of paid sharing plus continued steady growth in our ad-supported plan," it said in the earnings release.