Netflix earnings: Stock drops as big subscriber gains are outweighed by outlook (2024)

Everything you need to know about Netflix earnings

The company posted first-quarter net income of $2.3 billion, or $5.28 a share, compared with net income of $1.31 billion, or $2.88 a share, in the year-before quarter. Revenue climbed 15% to $9.37 billion.

Analysts surveyed by FactSet had, on average, expected net earnings of $4.52 a share on revenue of $9.27 billion.

The company delivered 9.3 million net new paid subscribers, while the FactSet consensus had been for 5.5 million, and bullish buy-side expectations were in the 7 million to 9 million range, according to an Evercore analyst.

Netflix provided second-quarter sales guidance of about $9.49 billion, while FactSet analysts were forecasting $9.53 billion. Netflix forecast $4.68 in EPS for the second quarter, slightly above the $4.54 forecast by analysts.

There's a new Street-high price target for Netflix Inc. shares, and it comes from Pivotal Research Group's Jeffrey Wlodarczak.

He was already the most upbeat analyst listed on FactSet, with a $765 target. But Wlodarczak brought that up to $800 following the latest results.

"Netflix has clearly won the streaming wars as evidenced by yet another strong across-the-board beat and raised guidance, especially relative to its streaming peers, and this is what, in our view, winning looks like," he wrote.

Wlodarczak was also unfazed by the company's decision to stop giving subscriber numbers after the end of this year. "We remind investors that [Apple stopped] disclosing iPhone unit growth in 4Q 2018 and after a short period of stock consolidation the stock materially outperformed the market," he said.

Greg Peters got a nearly 43% pay bump in 2023 after he was elevated to co-chief executive for nearly all of the year, Netflix Inc.’s latest proxy filing showed.

Peters’ total compensation for the year was $40.1 million, up from $28.1 million a year before. He brought home $2.9 million in salary, while $22.7 million of his compensation came from option awards, $13.9 million came from non-equity incentive-plan compensation and about $621,000 came from use of Netflix’s aircraft.

The company's other CEO, Ted Sarandos, saw nearly flat total pay, though the structure was different in 2023, the proxy released on Thursday afternoon indicated.

On Wall Street, less disclosure is never a good thing, and Netflix Inc. investors should be displeased that the company plans to stop giving quarterly membership data beginning next year.

Subscriber additions are a closely watched signal of Netflix’s business health, and the company’s decision to stop giving out that number on a regular basis next year could be a sign that Netflix expects a growth slowdown in the near future.

The disclosure of the upcoming change was a seemingly odd bombshell Thursday following a quarter when Netflix added 9.33 million new subscribers. That number was more than five times the number of customers added in the same quarter a year ago, and it was due in large part to its crackdown on password sharing.

During a video Q&A with analysts following the company's fiscal first-quarter results on Thursday, Netflix Inc. executives said they were encouraged by paid-sharing, advertising and subscriber growth, though they anticipate some deceleration in sales and subscriptions in the current second quarter.

Netflix Chief Financial Officer Spencer Neumann said he felt "really good" about gains in paid sharing and the advertising business in the back half of 2023, but acknowledged that net subscriber additions won't match second-quarter figures (5.9 million) from a year ago.

Netflix Co-Chief Executive Greg Peters said the "evolution of service," which includes multiple price tiers in various markets, prompted the company to stop reporting quarterly membership numbers and average revenue per member beginning in the first quarter of 2025.

"Increasingly, the math is not that simple anymore," said Peters, who added the company hopes to supercharge its advertising revenue through partner channels, bundles and increased awareness of the experience.

Netflix Inc. on Thursday disclosed plans to stop reporting quarterly subscriber metrics starting next year — a decision that "does raise questions about the growth prospects of Netflix’s subscriber base," according to a Third Bridge analyst.

"Netflix has ongoing initiatives such as the crackdown on password sharing and scaling of its ad business to grow its audience," Third Bridge's Jamie Lumley wrote. "However, without access to subscriber-growth numbers, it will be more difficult to track the progress of these efforts in the coming years."

Still, Lumley saw positives in Netflix's latest report, including on the profit front. Netflix sported a 28% operating margin, something that chief rivals might not be able to approach for years, according to his industry conversations.

Netflix shares were trading about 5% lower in after-hours action as the company's earnings interview went on.

Consumers are lapping up Netflix Inc.'s series and movies in record numbers as the pipeline of content gushes in a post-COVID world.

Series such as the prestige drama "Griselda" (66.4 million views) and "Avatar: The Last Airbender" (63.8 million), a live-action adaptation of the animated series of the same name, were top attractions. The true-crime offering "American Nightmare" (50.2 million) also scored high.

For the third time in the past four years, Netflix was the most-nominated studio at the Academy Awards, while "Society of the Snow" swept the Goyas, Spain's film awards, with 12 wins, the most of any film in two decades. With 98.5 million views, it is Netflix's second-most popular non-English-language movie of all time.

"Damsel" with Millie Bobby Brown (123.9 million views) and "Lift with Kevin Hart" (113 million) also drew huge numbers of eyeballs.

One of Netflix Inc.'s big recent initiatives is a push into advertising, and that move increasingly seems to be paying off.

The company saw its advertising membership grow 65% in the first quarter relative to the fourth quarter, and it said Thursday that more than 40% of sign-ups in markets where it offers the ad option were indeed for the ad tier.

"For advertisers, we continue to focus on measurement solutions," the company said in its shareholder letter.

The advertising effort dovetails with Netflix's crackdown on account sharing, as viewers forced to make their own accounts due to Netflix's restrictions on password sharing now have a cheaper option.

Even by some lofty analyst projections, Netflix Inc. surpassed expectations in adding new subscribers.

The streaming behemoth added 9.33 million subscribers in the first quarter, or more than five times the number of customers added in the same quarter a year ago — thanks in large part to a crackdown on password sharing. Netflix began limiting password sharing about a year ago.

"Almost 270M households across 190+ countries now subscribe to Netflix," company executives said in a letter to shareholders on Thursday. "With more than two people per household on average, we have an audience of over half a billion people. No entertainment company has ever programmed at this scale and with this ambition before."

The most optimistic analysts had predicted 7 million to 9 million net additions for the quarter.

Netflix Inc. investors pay a lot of attention to the company's subscriber growth — and, increasingly, to the company's average revenue per member (ARM).

But they won't be able to do that for much longer: Netflix disclosed in its shareholder letter that it plans to stop giving out "quarterly membership numbers and ARM," beginning with the first quarter of 2025.

"In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential," the company said in its letter. "But now we’re generating very substantial profit and free cash flow (FCF)."

Netflix already stopped offering quarterly paid-membership guidance last year.

Netflix Inc.’s stock initially declined 5% in extended trading Thursday after the streaming giant reported fiscal first-quarter net income of $2.3 billion, or $5.28 a share, compared with net income of $1.31 billion, or $2.88 a share, in the same quarter a year ago.

Revenue climbed 15% to $9.37 billion, from $8.16 billion in the year-ago quarter. Analysts surveyed by FactSet had, on average, expected net earnings of $4.52 a share on revenue of $9.27 billion.

Netflix provided second-quarter sales guidance of about $9.49 billion, while FactSet analysts were forecasting $9.53 billion. Netflix forecast $4.68 in EPS for the second quarter, slightly above the $4.54 forecast by analysts.

Shares of Netflix have climbed 26% so far this year, while the broader S&P 500 index is up 5%.