-=Netflix (NFLX) reported earnings on Tue 19 Apr 22 (a/h)

 

Netflix beats on EPS, reports slight downside on revs; guides Q2 EPS below consensus, revs slightly below consensus; Net adds in Q1 were -0.20 mln vs +2.50 mln prior guidance

• Reports Q1 (Mar) earnings of $3.53 per share, $0.61 better than the S&P Capital IQ Consensus of $2.92; revenues rose 9.8% year/year to $7.87 bln vs the $7.94 bln S&P Capital IQ Consensus.
  • Global streaming paid net adds in Q1 were -0.20 mln vs +2.50 mln prior guidance. Co guides to Q2 global streaming paid net adds at -2.00 mln.
  • Q1 operating margin came in at 25.1% vs 22.3% prior guidance; guides to Q2 operating margin of 21.5%.
  • "Our revenue growth has slowed considerably...Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently. While we work to reaccelerate our revenue growth - through improvements to our service and more effective monetization of multi-household sharing - we'll be holding our operating margin at around 20%."
  • "We estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn't changed much over the years, but...means it's harder to grow membership in many markets - an issue that was obscured by our COVID growth."
  • Competition: Co says competition for viewing with linear TV as well as YouTube, Amazon, and Hulu has been robust for the last 15 years. However, over the last three years, as traditional entertainment companies realized streaming is the future, many new streaming services have also launched. While our US television viewing share, for example, has been steady to up according to Nielsen, we want to grow that share faster.
• Co issues downside guidance for Q2, sees EPS of $3.00 vs. $3.02 S&P Capital IQ Consensus; sees Q2 revs of $8.053 bln vs. $8.22 bln S&P Capital IQ Consensus.

It's the worst performer year-to-date in the S&P 500 and the Nasdaq after just one day of plummeting stock performance. Netflix posted its first drop in subscribers since 2011, as shown in today's Chart of the Day. But perhaps more shocking than the 200,000 subscriber loss in the first quarter is the 2 million customers the streaming company expects to lose in the second quarter.

The solution? Netflix will introduce an ad-supported version of its service and target password sharing. To me, the bigger take away is how the rest of the market is reacting. Not too long ago, the end of a decade long growth trend (of say, 25 million subscribers a year on average) in one of the most-watched tech stocks would have tanked the whole market.