Los Gatos, California – Netflix’s stock took a significant hit on Friday, dropping as much as 9.6% after the company announced its second quarter revenue forecast fell short of expectations. The streaming giant also revealed that it would discontinue reporting quarterly subscriber metrics that are closely monitored by Wall Street analysts.
In its guidance for the second quarter, Netflix projected revenue of $9.49 billion, slightly below the consensus estimate of $9.51 billion. Additionally, the company disclosed its decision to cease reporting quarterly membership numbers starting in the next fiscal year, along with average revenue per member (ARM).
Netflix attributed the change in reporting metrics to the evolution of its pricing and plans, noting the differentiated business impact of each paid membership based on varying price points across different countries. Despite the revenue forecast miss, the company reported first quarter earnings that exceeded expectations, driven by the addition of over 9 million subscribers during the quarter.
The strong subscriber growth in the first quarter, with 9.3 million net additions surpassing the 4.8 million expected, followed a robust performance in the previous quarter where the streamer added 13 million subscribers. The company’s revenue also outperformed estimates, reaching $9.37 billion, representing a 14.8% increase from the same period last year.
Netflix’s stock had experienced a significant surge in recent months, trading near the upper end of its 52-week range. Despite the positive earnings results, the stock faced downward pressure as analysts cautioned that high expectations could pose a risk to its valuation.
Earnings per share (EPS) for the quarter far exceeded expectations, with Netflix reporting $5.28 compared to the consensus estimate of $4.52. The company also provided an optimistic outlook for the second quarter, forecasting an EPS of $4.68, higher than the expected $4.54.
Furthermore, Netflix disclosed strong profitability metrics, with operating margins expanding to 28.1% in the first quarter from 21% in the same period last year. The company expects a slight decrease in operating margins to 26.6% in the second quarter, following its robust performance in Q1.
Overall, Netflix’s strategic initiatives, including a crackdown on password-sharing and the introduction of an ad-supported tier, contributed to its revenue growth and subscriber additions. The company’s decision to halt reporting certain metrics reflects its evolving business model and focus on delivering value to its customers globally.