Netflix disappointed investors for the second time in a year with subscriber numbers falling short of its own forecasts as well as a weak outlook for the current quarter, but the market ignored the company’s best quarterly financial performance in its history.
The streaming giant reported 208 million global subscribers as of the end of the first quarter, missing its own prediction for 210 million.
3.98 million subscribers were added in the quarter against 6 million expected by the company.
The company cut its expectations for the current quarter to just 1 million new customers because the June quarter last year saw more than 15 million new subscribers as people around the world were locked down.
That would be the weakest quarter for new customer additions since it started streaming a decade ago. The low forecast follows the more than 10 million added in the June quarter of last year (making for more than 25 million for the first half of 2020 and over 37 million for the year as a whole, which would be tough to beat this year)
Revenue for the quarter of rose the forecast 24% to US$7.16 billion also topped forecasts and was the highest reported for a quarter.
Earnings for the quarter more than doubled from $US709 million a year ago to $US1.707 billion in the latest three months, the highest ever. The forecast for the June quarter is for a fall to $US1.441 million, reflecting the surge a year ago in the depths of the lockdowns.
The subscriber shortfall saw the shares drop 10.5% in after-hours trading, was blamed on issues related to the Covid pandemic.
“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 company said in its letter to shareholders.
“We continue to anticipate a strong second half with the return of new seasons of some of our biggest hits and an exciting film lineup.”
The letter said “some uncertainty” about Covid would linger in the short-term, but the long-term trend of streaming replacing linear TV remains in effect.
Net cash from operations surged to $US777 million in the quarter from $US260 million and free cash flow of $US692 million was up from $US162 million, underlining January’s surprise news that it’s on track to free cash flow break even this year and doesn’t need outside financing anymore to fund day-to-day business.
That’s despite revealing it will spend a record $US17 billion on content this year.
The company says the shortfall in subscribers is not a result of the increased competition.
Disney, Apple, NBCUniversal, WarnerMedia, Discovery all launched new services over the past 18 months, and ViacomCBS has also expanded and rebranded CBS All Access.
“We don’t believe competitive intensity materially changed in the quarter or was a material factor in the variance as the over-forecast was across all of our regions,” the company said.
“We also saw similar percentage year-over-year declines in paid net adds in all regions …. whereas the level of competitive intensity varies by country,” Netflix said.
Netflix also approved a buyback program to repurchase up to $US5 billion of shares, beginning in 2021 with no fixed expiration date. That’s expected to start this quarter and a sign the company is trying to support the stock in what could be a rough quarter or two for it as subscriber numbers slow.
