Netflix reported strong subscriber gains but disappointing second-quarter revenue forecasts

Netflix (NFLX) reported first-quarter earnings that beat all areas on Thursday while adding more than 9 million more subscribers in the quarter. However, disappointing second-quarter revenue guidance sent the stock down more than 3% in after-hours trading.

Subscriber additions of 9.3 million beat expectations of 4.8 million and tracked net additions of 13 million added by the operator in the fourth quarter. The company added 1.7 million paid users in the first quarter of 2023.

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

“Because we have evolved our pricing and plans from one tier to multiple tiers with different price points depending on the country, each additional paid membership has a completely different business impact,” the company said.

Revenue surpassed Bloomberg's consensus estimate of $9.27 billion to reach $9.37 billion in the quarter, up 14.8% from the same period last year, as the streamer relied on revenue initiatives like its crackdown on password sharing and its ad-supported tier, in addition. to recent price hikes on some subscription plans.

Netflix reached second-quarter revenue of $9.49 billion, which was a miss compared to the consensus estimate of $9.51 billion.

Netflix 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 have warned that high print expectations could be an inherent risk to the stock price.

Earnings per share (EPS) beat estimates this quarter as the company reported EPS of $5.28, well above consensus expectations of $4.52 and nearly double the EPS figure of $2.88 it reported in the same period last year. Netflix guided for Q2 EPS of $4.68, ahead of consensus calls of $4.54.

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

The company had previously guided for full-year 2024 operating margins of 24% after the metric rose to 21% from 18% in 2023. Netflix expects margins to decline slightly in the second quarter to 26.6%.

Free cash flow reached $2.14 billion in the quarter, above consensus expectations of $1.9 billion.

Meanwhile, ARM rose 1% year-over-year – consistent with Q4 results. Wall Street analysts expect ARM to rebound later this year as the ad class effect and the effects of higher prices take hold.

On the advertising front, ad tier memberships increased 65% quarter-over-quarter after rising nearly 70% sequentially in Q3 and Q4 2023. Ad tier memberships now account for over 40% of all Netflix subscriptions in markets served In which.