Netflix stock slid as much as 8% Friday after the company gave a second quarter revenue forecast that missed estimates and announced it would stop reporting quarterly subscriber metrics closely watched by Wall Street.
On Thursday, Netflix guided to second quarter revenue of
$9.49 billion, a miss compared to consensus estimates of $9.51 billion.
The company said it will stop reporting quarterly membership
numbers starting next year, along with average revenue per member, or ARM.
"As we’ve evolved our pricing and plans from a single
to multiple tiers with different price points depending on the country, each
incremental paid membership has a very different business impact," the
company said.
Netflix reported first quarter earnings that beat across the
board on Thursday, with another 9 million-plus subscribers added in the
quarter.
Subscriber additions of 9.3 million beat expectations of 4.8
million and followed the 13 million net additions the streamer added in the
fourth quarter. The company added 1.7 million paying users in Q1 2023.
Revenue beat Bloomberg consensus estimates of $9.27 billion
to hit $9.37 billion in the quarter, an increase of 14.8% compared to the same
period last year as the streamer leaned on revenue initiatives like its
crackdown on password-sharing and ad-supported tier, in addition to the recent
price hikes on certain subscription plans.
Netflix’s stock has been on a tear in recent months, with
shares currently trading near the high end of its 52-week range. Wall Street
analysts had warned that high expectations heading into the print could serve
as an inherent risk to the stock price.
Earnings per share (EPS) beat estimates in the quarter, with
the company reporting EPS of $5.28, well above consensus expectations of $4.52
and nearly double the $2.88 EPS figure it reported in the year-ago period.
Netflix guided to second quarter EPS of $4.68, ahead of consensus calls for
$4.54.
Profitability metrics also came in strong, with operating
margins sitting at 28.1% for the first quarter compared to 21% in the same
period last year.
The company previously guided to full-year 2024 operating
margins of 24% after the metric grew to 21% from 18% in 2023. Netflix expects
margins to tick down slightly in Q2 to 26.6%.
Free cash flow came in at $2.14 billion in the quarter,
above consensus calls of $1.9 billion.
Meanwhile, ARM ticked up 1% year over year — matching the
fourth quarter results. Wall Street analysts expect ARM to pick up later this
year as both the ad-tier impact and price hike effects take hold.
On the ads front, ad-tier memberships increased 65% quarter
over quarter after rising nearly 70% sequentially in Q3 2023 and Q4 2023. The
ads plan now accounts for over 40% of all Netflix sign-ups in the markets it’s
offered in.
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