Netflix stock sinks on disappointing earnings forecast, moves to scrap membership metrics

Shares of Netflix ( NFLX ) fell as much as 8% on Friday after the company delivered second-quarter earnings forecasts that missed estimates and announced it would stop reporting quarterly subscriber metrics closely watched by Wall Street.

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

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

“Because we've made our pricing and plans multi-tiered with different price points depending on the country, each incremental pay membership has a very different business impact,” the company said.

Netflix reported first-quarter earnings on Thursday, adding more than 9 million more subscribers in the quarter.

The 9.3 million subscriber additions beat expectations of 4.8 million and followed the streamer's 13 million net additions in the fourth quarter. The company added 1.7 million paid users in Q1 2023.

Revenue hit $9.37 billion in the quarter, beating the Bloomberg consensus estimate of $9.27 billion, a 14.8% increase from the same period last year, leaning on revenue initiatives like its crackdown on password-sharing and ad-support tiers. Recent price increases on some subscription plans.

Shares of Netflix have been falling in recent months, with the stock currently trading at the high end of its 52-week range. Wall Street analysts have warned that higher expectations going into print pose an inherent risk to the stock price.

Earnings per share (EPS) beat estimates for the quarter, with the company reporting EPS of $5.28, which topped consensus expectations by $4.52 and more than doubled the $2.88 EPS figure it reported in the year-ago period. Netflix guided for second-quarter EPS of $4.68, ahead of consensus calls for $4.54.

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Profitability metrics have also come in strong, with operating margins at 28.1% in the first quarter, up from 21% in the same period last year.

The company guided for full-year 2024 operating margins of 24% after the metric grew from 18% to 21% in 2023. Netflix expects that to fall to 26.6% in Q2.

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

Meanwhile, ARM increased 1% year-over-year — matching fourth-quarter results. Wall Street analysts expect ARM to begin later this year as both the advertising layer impact and the price hike effects take hold.

On the ads front, ad tier membership grew 65% quarter-on-quarter after rising nearly 70% sequentially in Q3 2023 and Q4 2023. The ad program now accounts for more than 40% of all Netflix subscriptions on the market.

FILE PHOTO: Netflix reported first-quarter earnings after the bell on Thursday.  REUTERS/Dado Ruvik/File photo

Netflix reported its first quarterly earnings after the bell on Thursday. REUTERS/Dado Ruvik/File photo (REUTERS/Reuters)

Alexandra Canal Senior reporter at Yahoo Finance. Follow her on X @alli_kanal, LinkedIn, and email [email protected].

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