Netflix (NFLX) Beats Earnings Expectations but Misses on Revenue and Subscriber Growth
New Ad-Supported Service Gains Traction, While Company Prepares for Wider Rollout of Password Sharing Crackdown
Netflix posted mixed first-quarter results, with earnings per share of $2.88, surpassing analysts' expectations of $2.87, but falling short on revenue with $8.16 billion compared to the projected $8.17 billion. The streaming giant's subscriber growth also missed the mark, reaching 232.5 million instead of the anticipated 233 million. For Q2, Netflix's forecast showed earnings per share of $2.84 and revenue of $8.24 billion, both lower than Wall Street's expectations.
The company's previous quarter showed revenue of $7.85 billion, an adjusted profit of 12 cents per share, and a surprising free cash flow of $332 million. However, Netflix's operating profit line has deteriorated. Reed Hastings, the company's CEO, has stepped down and taken the position of Chairman, with COO Greg Peters stepping in as joint CEO alongside Ted Sarandos.
Analysts from Wells Fargo, Oppenheimer, and Morgan Stanley have set target prices for the stock at $400, $400, and $350, respectively. Netflix's stock increased by 14.8% this year but decreased by 0.7% in the last 12 months.
The company's executives referred to Q1 as "business as usual" as they transition from rapid subscriber growth to greater profitability. In an attempt to boost financial results, Netflix has introduced cheaper ad-supported options and plans to crack down on password sharing in the US during Q2.
The streaming giant's ad-supported tier has exceeded expectations, with higher engagement and minimal switching from standard and premium plans. The "Basic with Ads" plan costs $6.99 a month in the US and complements Netflix's ad-free tiers. The company plans to upgrade its ads experience, providing more streams and improved video quality to attract a broader range of consumers.
Netflix experienced its first subscriber decline in over a decade last year, losing 200,000 subscribers. The company added 9 million subscribers in 2022, half the number gained in 2021, with the majority of growth coming from Asia. The growth in Asia and Latin America has impacted average revenue per user, prompting Netflix to make changes to its business model.
The company is closing its 25-year-old DVD rental division, citing difficulties in providing the best service as the business shrinks. Netflix anticipates Q2 earnings of $2.84 per share on $8.24 billion in revenue, falling short of Wall Street's predictions.
Netflix has expanded its crackdown on password sharing to include the US, Canada, New Zealand, Portugal, and Spain, and plans a "broad rollout" of the policy this quarter. The company has stated that it is pleased with the results so far, despite near-term churn observed in Latin American markets.