Netflix stock declines as revenue guidance falls short, despite subscriber gains

Investing.com -- Netflix reported Thursday better-than-expected first-quarter results after blowout subscriber growth, but the streaming giant forecast weaker-than-expected revenue for the current quarter amid expectations for slower net additions in Q2.  

Netflix Inc (NASDAQ:NFLX) has declined more than 6% in premarket trading following the report. 

Netflix reported earnings of $5.28 a share on revenue of $9.37B, topping estimates of $4.51 on revenue of $9.27B. 

The beat on the bottom line was driven by stronger-than-expected subscriber growth in the quarter.

Netflix added 9.33 million users, markedly beating analyst expectations of about 4.8 million net adds.

The company's ad-tier streaming service saw membership grow 65% quarter on quarter, underscoring progress on its plans for ad revenue growth to become a more meaningful part of its business.   

For the second quarter, the company forecast EPS of $4.68 on revenue of $9.49B, compared with Wall Street estimates of $4.55 on revenue of $9.5B, but also cautioned that paid net additions would slow sequentially in Q2. 

"We expect paid net additions to be lower in Q2’24 vs. Q1’24 due to typical seasonality," Netflix said, though added that average revenue per membership, to be up year-over-year in Q2.

Looking further ahead, the company forecast revenue growth of 13% to 15%, on operating margin of 25%, up from a prior forecast of 24%. 

The company also said it would stop reporting quarterly membership numbers and average revenue per membership starting next year with its Q1 2025 earnings, as it believes revenue and operating margin are its key performance measures.

Reacting to the report, analysts at Canaccord downgraded the stock to Hold from Buy, slashing the price target to $585 from $720 per share. The firm said there is "likely slower growth ahead" for the streaming giant. 

"Netflix reported Q1 results that were ahead of expectations, with revenue benefiting from another quarter of strong member additions as the company continues to scale its paid sharing offering, and profitability came in ahead of guidance. The forward revenue outlook for Q2 was roughly in line with expectations, while operating income guidance was ahead of consensus," wrote Canaccord analysts. "Despite these mostly solid results and outlook, we see limited growth catalysts for the next few quarters and with the stock up ~90% over the last 12 months and up ~25% YTD, we think investors may be well served to look elsewhere for upside."

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Piper Sandler analysts maintained a Neutral rating and a $600 price target on Netflix. They said they believe the stock is down more than 6% premarket as the results were largely in-line with heightened investor expectations. "Overall, we think investors will debate the decision to stop reporting subs and ARM in 2025," stated the firm. 

UBS sees Netflix's double-digit growth continuing. The bank maintained a Buy rating and $685 price target on Netflix, saying the results were strong and "reflected the benefit of ongoing monetization initiatives while competitive dynamics continue to shift in favor of the company." This is driving UBS's bullish view.