Netflix Shares Fall After Missing Subscriber Estimates

After a tremendous period of growth during the pandemic, Netflix investors are now worried after the company missed subscriber numbers.

Following a record year of growth during the pandemic, the king of streaming reported disappointing subscriber growth in its first-quarter earnings call on Tuesday. The company also said that it expects to only add around 1 million new subscribers in the current quarter, compared to Wall Street’s forecasts for 4.44 million.

After the report, Netflix (NASDAQ: NFLX) shares fell as much as 11% in after-hours trading.

Netflix earnings 

The streaming service reported: 

  • Earnings per share (EPS) of $3.75, beating the $2.97 that Netflix expected.
  • Revenue of $7.16 billion, compared with $7.13 billion predicted, up 24% year-over-year (YoY). 
  • Global paid net subscriber additions grew to 3.98 million, falling short of the 6.2 million expected, and far below the quarterly record of 15.8 million new users in Q1 of 2020.

Investors focused on Netflix’s subscriber miss, which the company owed to the ongoing coronavirus pandemic delaying some of its big-name releases. The production company said that it expects to have fresh content later this year once COVID-19 restrictions are eased and will have $17 billion in cash ready to spend on new series and movies in 2021. Netflix explained in its letter to shareholders:

“We believe paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays.” 

The content platform said that it does not think rising competition from Disney+, AT&T’s HBO Max, Apple TV+, and Amazon Prime was a factor in the low subscriber numbers. 

Is Netflix in trouble after reporting Q1 earnings? 

Netflix’s revenue growth of 24% YoY and its strong beat on earnings per share were both very positive signs that shareholders should view favorably. In addition, the California-based company has become very efficient from an operating viewpoint, despite funneling billions into content creation, as the company now expects to be free cash flow to breakeven in 2021. Netflix also discussed its buyback program to repurchase up to $5 billion of its common stock starting in 2021, signaling the strength of the business. 

While Netflix might have missed paid subscriber number expectations in Q1, the company is still the leading content provider in the crowded video streaming space. This is evidenced by Netflix leading the Oscar race with 35 nominations for 16 movies. 

Many analysts expected a slow down in subscriber growth as countries ease lockdown restrictions and return to other activities. Furthermore, once production filming times resume to normal post-pandemic, Netflix should stay on top as it expands its global footprint and content library.  

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