Finance
Netflix reports a strong increase in subscribers, but its second quarter revenue forecast disappoints
Netflix (NFLX) reported a first-quarter profit across the board on Thursday, adding more than 9 million subscribers in the quarter. However, disappointing revenue expectations for the second quarter and the full year, combined with a new announcement about the reporting policy, caused the stock to fall more than 6% in pre-market trading on Friday.
The subscriber count of 9.3 million exceeded expectations of 4.8 million and followed the net 13 million the streamer added in the fourth quarter. The company added 1.7 million paying users in the first quarter of 2023.
Notably, the company said that starting next year it will stop reporting quarterly membership numbers, along with average revenue per member, or ARM.
“As we have evolved our pricing and subscriptions from single to multiple tiers with different price points depending on country, each incremental paid membership has a very different business impact,” the company said.
Revenue exceeded Bloomberg consensus expectations of $9.27 billion to reach $9.37 billion in the quarter, up 14.8% from the same period last year, as the streamer leaned on revenue initiatives like the crackdown against password sharing and ad-supported level. to the recent price increases for certain subscriptions.
Netflix guided to $9.49 billion in revenue in the second quarter, a miss compared to consensus estimates of $9.51 billion.
Shares of Netflix have been falling in recent months, with the shares currently trading near the top of their 52-week range. Wall Street analysts had warned that high expectations appearing in the paper could pose an inherent risk to the stock price.
Earnings per share (EPS) exceeded expectations in the quarter, with the company reporting earnings per share of $5.28, well above consensus expectations of $4.52 and nearly double the earnings per share of $2.88 it reported in the same period last year. Netflix guided to second-quarter earnings per share of $4.68, ahead of the $4.54 consensus call.
Profitability figures were also strong, with operating margins reaching 28.1% in the first quarter, compared to 21% in the same period last year.
The company previously targeted an operating margin of 24% for the full year 2024, after the metric grew from 18% in 2023 to 21%. Netflix expects margins to decline slightly to 26.6% in the second quarter.
Free cash flow came in at $2.14 billion in the quarter, ahead of the consensus estimate of $1.9 billion.
Meanwhile, ARM rose 1% year over year, matching its fourth quarter results. Wall Street analysts expect ARM to pick up later this year as both the ad tier impact and price appreciation effects play out.
On the advertising front, ad-level memberships increased 65% quarter-over-quarter, following a nearly 70% sequential increase in Q3 2023 and Q4 2023. The ad plan now accounts for more than 40% of all Netflix registrations in the markets in which it is offered.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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