Investors hoping for a repeat of the boost Netflix gave the market in February’s sell down with its December 2022 report will be disappointed by the numbers for the March quarter.
Netflix shares were up 0.29% in regular trade and off 2% in the wake of the release of the results after trading ended. That compares to the 10% plus rise seen after the December quarter report was released in January.
Why the tepid reaction? Well, it was a rather ‘ho-hum’ set of figures that ended up being overshadowed by a piece of history from the streaming video giant’s CEO Ted Sarandos, who wrote in in a blog post that the company’s original business – DVDs by mail, would be ending this year.
The post, headlined Netflix DVD – The Final Season, read:
“To everyone who ever added a DVD to their queue or waited by the mailbox for a red envelope to arrive: thank you.
“After an incredible 25-year run, we’ve made the difficult decision to wind down at the end of September. Our goal has always been to provide the best service for our members, but as the DVD business continues to shrink, that’s going to become increasingly difficult. Making 2023 our final season allows us to maintain our quality of service through the last day and go out on a high note,” Sarandos said.
The mail rental business was launched by founders Reed Hastings and Marc Randolph in 1998, and still had a few fans, but Netflix is now all about the stream and content, revenue and earnings – and especially free cash flows.
Now Netflix plans to phase in “paid sharing” — the company’s preferred term for cracking down on the loaning of login credentials — in the US in the coming weeks. It had been due to start in March.
Pricing has not yet been specified in all territories, but Netflix says it is expecting some financial impact on second-quarter and third-quarter results.
The timing of the big push in the second quarter is a bit later than previous plans for the first quarter, but the company believes the learning from existing tests will help it refine the setup as it goes global.
“We’re pleased with the most recent launches of paid sharing (in Canada, New Zealand, Spain and Portugal) and while we could have launched broadly in Q1, we found opportunities to improve the experience for members,” Netflix’s latest shareholder letter said. “We learn more with each rollout and we’ve incorporated the latest learnings, which we think will lead to even better results.”
The US debut during the second quarter is part of a “broad rollout” across the world in the current quarter, the company said in its quarterly letter to shareholders. “In Q1, we launched paid sharing in four countries and are pleased with the results.”
Netflix reported first-quarter revenue and earnings roughly in line with market forecasts but offered a forecast below analyst estimates for the three months to June.
The company posted revenue of $US8.162 billion for the March quarter, up 3.7% from a year ago (around 8% in constant currency terms). Net income fell to $US1.3 billion from more than $1.5 billion in the year ago first quarter of 2022.
Looking ahead, Netflix forecast $8.242 billion in revenue and for the second quarter. Wall Street had been projecting $8.476 billion for revenue and $3.05 for diluted EPS.
The company added 1.75 million subscribers in the quarter, taking the total to 232.50m. That was under analyst estimates of 2.06 million additions. But seeing it lost 200,000 a year ago, the gain this time was more than sufficient to keep investors happy.
Netflix’s favoured performance measure is net and free cash – the latest quarter saw net cash of $US2.1 billion reported, more than double the $US923 a year earlier.
Free cash flow of more than $US2.3 billion was almost three times the $US802 million in the March, 2022 quarter, a performance that will keep the streamer’s management happy.
Boosting cash flow was a cut in spending on content in the quarter to around $US2.6 billion from $US3.2 billion a year ago.
