Barrons Digital Edition Says That Netflix Gives a Weak Forecast

Barrons Digital Edition.- Netflix stock fell as much as 9% in after-hours trading following the earnings report. A half hour later it was trading nearly flat.

For the quarter, Netflix posted revenue of $8.17 billion, up 3.7%, with profits of $2.88 a share. The company had projected $8.2 billion in revenue, and earnings of $2.82 a share. The Wall Street consensus estimates had called for $8.2 billion and $2.86 a share. The company has stopped providing a specific forecast for subscriber growth.

For the June quarter, Netflix sees revenue of $8.24 billion, up 3.4%, with profits of $2.84 a share; that’s below the old Wall Street consensus of $8.5 billion and $3.07 a share. The company said that paid net adds in the quarter should be “roughly similar” to the first quarter, which would be below the Street consensus forecast at 3.7 million.

On the other hand, the company boosted its forecast for full-year free cash flow to at least $3.5 billion, from a previous forecast of at least $3 billion.

Netflix also said that it expects the U.S. launch of “paid sharing,” its program for cracking down on password sharing, in the second quarter. The company launched paid sharing in four countries in the first quarter—Canada, New Zealand, Portugal, and Spain—and said it is “pleased with the results.” And noted that average revenue per membership globally was down 1% in the quarter from the year-earlier period. The company noted that its subscription base in Canada is now larger than before implementing paid sharing.

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The company said that the shift of the paid sharing launch into the second quarter should result in “a better outcome for both our members and our business.”

Operating income in the latest quarter was $1.7 billion, above the company’s forecast of $1.6 billion, reflecting “ongoing expense management and timing of hiring and content spend,” Netflix said. The company sees second-quarter operating income of $1.6 billion, with operating margin declining to 19% from 20%, largely due to appreciation of the dollar against other currencies.

Netflix said it bought back 1.2 million shares in the quarter for $400 million.

Netflix said its long-term financial objectives remain unchanged—it seeks to produce double-digit revenue growth, while expanding operating margins and delivering growing positive free cash flow. The company added that it expects constant currency revenue growth to accelerate during the second half of the year as the paid sharing program rolls out and the advertising business grows. Netflix said to Barrons Digital Edition, it still expects full year operating margin of 18% to 20%.

As for recent price cuts in some markets, Netflix noted that in December 2021 the company cut prices in India by 20% to 60%, spurring better engagement and 24% growth in currency neutral revenue in the country in 2022. Encouraged by that result, the company cut prices in 116 countries in the first quarter, which together accounted for under 5% of 2022 revenue.

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On the topic of the recently introduced ad-supported subscription tier, Netflix said that it is “pleased with our progress across all key dimensions: member experience, value to advertisers, and incremental contribution to our business.” The company said engagement with the ads has been above initial expectations. Netflix also said the ad-supported tier now has about 95% content parity globally with ad-free plans.

Netflix today also announced that it will completely shut down its original DVD-by-mail service in September.

“On September 29th, 2023, we will send out the last red envelope,” the company said on Twitter. “It has been a true pleasure and honor to deliver movie nights to our wonderful members for 25 years. Thank you for being part of this incredible journey, including this final season of red envelopes.”