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Netflix Q1 Growth Hits 16%, Profits Soar Post-Password Crackdown

Netflix's Q1 sees 9.3 million new subscribers, hitting 269 million total, after password crackdown, boosting profits and operating income by 54%.

By Bill Bullington

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4/18, 16:50 EDT
Netflix, Inc.
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Key Takeaway

  • Netflix's Q1 subscriber growth soared by 9.3 million to 269 million, a 16% year-over-year increase, driven by a crackdown on password sharing and a new ad-supported tier.
  • Operating income jumped 54% to $2.6 billion with earnings of $5.28 per share, beating estimates; however, Q2 revenue forecast slightly misses expectations.
  • Despite market volatility and rising US bond yields, strategic moves like entering live sports broadcasting with WWE's "Raw" in 2025 could further boost Netflix's growth.

Subscriber Momentum

Netflix has demonstrated a robust increase in its subscriber base, adding 9.3 million subscribers in the first quarter, significantly surpassing Wall Street forecasts. This growth has elevated its total subscribers to 269 million, marking a 16% increase from the previous year. The surge in subscribers is attributed to Netflix's strategic measures, including a crackdown on password sharing and the introduction of an advertising-supported subscription tier. Despite these positive developments, Netflix announced it would cease the disclosure of its subscriber numbers from the next year, shifting its focus towards engagement metrics and new revenue streams such as advertising. This decision has sparked mixed reactions among analysts and investors.

Financial Highlights and Future Outlook

Netflix reported a substantial 54% increase in operating income, reaching $2.6 billion up from $1.7 billion a year ago, with earnings of $5.28 a share, outperforming the anticipated $4.51 by analysts. The company has projected its revenue to grow between 13-15% for the full year. However, it has guided to a second-quarter revenue of $9.49 billion, slightly below consensus estimates. The company's profitability metrics have also shown improvement, with operating margins reaching 28.1% for the first quarter compared to 21% in the same period last year. Free cash flow was reported at $2.14 billion, surpassing expectations.

Analysts' Perspectives and Strategic Moves

Analysts have expressed varied opinions on Netflix's performance and strategic direction. While some maintain an optimistic outlook on the company's growth trajectory, citing the potential long-term benefits of its password sharing crackdown and advertising initiatives, others express caution, pointing to the high expectations set by the market. Netflix's decision to venture into live sports broadcasting, starting with WWE's "Raw" in 2025, is seen as a significant move that could further influence its subscriber growth and share price. However, the broader market environment poses challenges, with recent volatility in the tech sector and rising US bond yields adding layers of uncertainty.

Street Views

  • Paolo Pescatore, PP Foresight (Neutral on Netflix):

    "No matter the company’s attempt to switch focus from subscribers to financials, net [subscriber] adds is the key metric everyone wants to see. The movement to no longer disclose quarterly subscriptions from next year will not go down well."