Netflix (NFLX, Financial) saw its stock decline by 8% following its first-quarter earnings announcement, despite outperforming expectations with a significant earnings per share (EPS) beat and robust revenue growth. The mixed guidance for the second quarter, featuring higher EPS but slightly weaker revenue forecasts, has caught investors' attention. The report highlighted several key achievements, including notable subscriber growth, the success of its paid sharing initiative, margin improvements, and a surge in advertising revenue.
- The company reported a remarkable increase of 9.33 million in global streaming paid net adds during Q1, surpassing both street estimates and its own previous guidance. This growth is particularly impressive given the seasonal slowdown typical of Q1, and it follows a strong performance in previous quarters attributed to Netflix's crackdown on password sharing.
- Netflix has shifted away from providing guidance on net adds but anticipates typical seasonal patterns to continue, with Q2 expected to see a decrease in paid net adds. However, advertising revenue has been a highlight, showing a 65% increase sequentially, following two quarters of approximately 70% growth.
- Operating margin for Q1 was reported at 28.1%, exceeding both the prior guidance and the previous quarter's figures. Netflix also adjusted its full-year 2024 forecast for operating margin upwards, though it cautioned that margins could fluctuate due to factors like foreign exchange rates and content investment.
- Despite these positive indicators, Netflix's stock is under pressure due to anticipated revenue growth deceleration in the second half of 2024 and the decision to discontinue reporting on subscriber growth and average revenue per user (ARPU). The company attributed this change to the evolving complexity of its pricing and plan structures across different markets.
The combination of expected growth deceleration in the latter half of 2024 and the cessation of subscriber data reporting seems to be influencing the stock's performance negatively. This, along with the recent bullish sentiment and subsequent profit-taking by investors, has led to a downturn in Netflix's stock. The loss of subscriber growth data, a key metric for investors, is particularly concerning as it reduces the amount of information available for making investment decisions.
