Netflix (NASDAQ:NFLX) share price looks set to fall sharply when US markets reopen later today after the company fell short on new subscribers in Q1.
Despite the disappointment of a slowdown in user growth, revenues came in much better than expected, at $7.16bn, while profits came in at $3.75c a share, well above expectations of $2.98c.
Expectations for user growth were always likely to be a hostage to fortune given that they were set at a rather lofty 6m, and with lockdowns set to be eased and the summer months usually a time when people want to go outdoors, there was always this risk that we might see a miss on these numbers.
This is precisely what happened with 3.98m new users added in Q1, however the real kicker came with the estimates for Q2 which came in at 1m, well below estimates of 4.4m, and sharply down from last year’s 10m, which were pumped up by the first Covid-19 lockdown.
This appears to have spooked investors who perhaps had their expectations set rather high, however when you look at the number of users added last year, Netflix was always due to see a slowdown in new subscribers.
The revenue numbers would appear to suggest that this quarters price rises haven’t put too many people off from paying what is a premium price, with Netflix now having 207.6m total subscribers.
Estimates for Q2 revenues are still expected to be healthy at $7.3bn and while the next two quarters are likely to see slightly slower subscriber growth, the second half is likely to see these numbers pick up as new series of Stranger Things, Lost in Space and The Witcher get rolled out.
As far as operating margins are concerned these rose to 20%, while the company said it still expects to come in cash flow positive for the full year, while the company said it would start buying back stock to the tune of $5bn.
While today’s market reaction to last nights user subscriber miss is likely to be negative one, it doesn’t change the fact that Netflix remains number one in the streaming space, and while this could be considered a setback, its unlikely that this slowdown in subscriber growth will translate into a move away to its peers.
The likes of Amazon (NASDAQ:AMZN) Prime, Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) are likely to experience the exact same sort of subscriber slowdown as restrictions get eased further.
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