Netflix (NASDAQ:NFLX) shares took a hit, dropping as much as 8% on Friday following the company’s second-quarter revenue forecast, which fell short of estimates. Additionally, Netflix announced it would cease reporting quarterly subscriber metrics, a move closely monitored by Wall Street.
In its guidance released on Thursday, Netflix projected second-quarter revenue of $9.49 billion, slightly below the consensus estimate of $9.51 billion. However, the company reported robust first-quarter earnings, surpassing expectations across the board, and adding over 9 million subscribers during the quarter.
The 9.3 million subscriber additions exceeded expectations of 4.8 million and followed the 13 million net additions in the previous quarter. Netflix also reported an increase in revenue to $9.37 billion, up 14.8% compared to the same period last year, leveraging initiatives such as its crackdown on password-sharing and the introduction of an ad-supported tier, alongside recent price hikes on certain subscription plans.
While Netflix’s stock has seen significant growth in recent months, trading near the high end of its 52-week range, analysts had cautioned that high expectations could pose a risk to the stock price.
Earnings per share for the quarter stood at $5.28, well above consensus expectations of $4.52 and nearly double the figure reported in the year-ago period. Netflix anticipates second-quarter EPS of $4.68, surpassing consensus calls for $4.54.
The company demonstrated strong profitability metrics, with operating margins reaching 28.1% for the first quarter, compared to 21% in the same period last year. Netflix previously guided for full-year 2024 operating margins of 24%, with expectations of a slight dip to 26.6% in Q2.
Free cash flow for the quarter came in at $2.14 billion, surpassing consensus calls of $1.9 billion. Additionally, average revenue per member increased by 1% year over year, aligning with fourth-quarter results. Analysts anticipate ARM to rise further later this year, driven by the impact of the ad-tier strategy and price hikes.
The ad-tier memberships experienced significant growth, with a 65% increase quarter over quarter, contributing over 40% of all Netflix sign-ups in markets where it’s offered.
