Netflix reports strong subscriber gains but Q2 revenue forecast disappoints

Netflix (NFLX) reported first quarter earnings that beat across the board on Thursday with another 9 million-plus subscribers added in the quarter. However, disappointing second quarter revenue guidance dragged the stock more than 3% lower in after-hours trading.

Subscriber additions of 9.3 million beat expectations of 4.8 million and follows the 13 million net additions the streamer added in the fourth quarter. The company had added 1.7 million paying users in Q1 2023.

Notably, the company said it will stop reporting quarterly membership numbers starting next year, along with average revenue per member, or ARM.

“As we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact,” the company said.

Revenue beat Bloomberg consensus estimates of $9.27 billion to hit $9.37 billion in the quarter, an increase of 14.8% compared to the same period last year, as the streamer leaned on revenue initiatives like its crackdown on password sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.

Netflix guided to second quarter revenue of $9.49 billion, a miss compared to consensus estimates of $9.51 billion.

Netflix’s stock has been on a tear in recent months with shares currently trading near the high end of its 52-week range. Wall Street analysts had warned how high expectations heading into the print could serve as an inherent risk to the stock price.

Earnings per share (EPS) beat estimates in the quarter with the company reporting EPS of $5.28, well above consensus expectations of $4.52 and nearly double the $2.88 EPS figure it reported in the year-ago period. Netflix guided to second quarter EPS of $4.68, ahead of consensus calls for $4.54.

Profitability metrics also came in strong with operating margins sitting at 28.1% for the first quarter compared to 21% in the same period last year.

The company previously guided to full-year 2024 operating margins of 24% after the metric grew to 21% from 18% in 2023. Netflix expects margins to tick down slightly in Q2 to 26.6%.

Free cash flow came in at $2.14 billion in the quarter, above consensus calls of $1.9 billion.

Meanwhile, ARM ticked up 1% year over year — matching the fourth quarter results. Wall Street analysts expect ARM to pick up later this year as both the ad tier impact and price hike effects take hold.

On the ads front, ad-tier memberships increased 65% quarter over quarter after rising nearly 70% sequentially in Q3’23 and Q4’23. The ads plan now accounts for over 40% of all Netflix sign-ups in the markets it’s offered in.

FILE PHOTO: Netflix reported first quarter earnings after the bell on Thursday. REUTERS/Dado Ruvic/File Photo

FILE PHOTO: Netflix reported first quarter earnings after the bell on Thursday. REUTERS/Dado Ruvic/File Photo (REUTERS / Reuters)

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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