Netflix Shares Sink After Reporting Slow Growth, Missed Target

Netflix Shares Sink After Reporting Slow Growth, Missed Target

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Key Takeaways

• Netflix shares plummeted 12% in after-hours trading after missing subscriber target
• Revenue grows 24% year on year to $7.2bn, slightly beating estimates of $7.1bn

Netflix Inc. reported 3.98 million new subscribers in the first quarter of 2021. The sharp decline in new users of the streaming service comes as a result of economies reopening around the globe, following the pandemic-stricken 2020.

“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 a letter to shareholders. The streaming giant’s financial results reflect the first quarter of significant easing of lockdown restrictions as the US and the UK began to reopen their economies and to allows broader social activities.

The 3.98 million new users for the first quarter-point to over 50% drop compared with previous quarter results when Netflix added 8.5 million. The company predicted growth of 6 million between January and March. Customers in overseas markets continue to drive growth. 1.8 million new subscribers have been added from Europe and the Middle East and 1.4 million have joined from Asia. Latin America marks an increase of 360,000, while the US and Canada contribute by 450,000.

The Streaming Giant Remains Unconcerned by Competition

In the same quarter one year ago, at the onset of the global pandemic, Netflix reported 16 million new users when people were homebound. For the past year, Netflix added a total of 37 million new subscribers. At the end of March, the company recorded 208 million paying customers globally, 2 million users short of its guidance of 210 million.

Netflix revenues for the quarter were up 24% from the year-ago quarter to $7.2bn, slightly beating estimates of $7.1bn. Net income spiked to $1.7bn, or $3.75 a share, beating expectations of $2.98 a share. It is also above the $542mn, or $1.19 a share, a year ago.

The streaming company forecasts the second quarter to produce lower growth, only 1 million new paying customers, while the US and Canada could remain “roughly flattish”. Netflix said it will begin buying back stock this quarter, using up to $5bn authorized for buybacks.

“It’s just a little wobbly right now,” Netflix CEO Reed Hastings said on the company’s video call as he discussed the quarterly results. Mr. Hastings did not see the growing competition as a particular threat to the success of his company. “There’s no real change that we can detect in the competitive environment,” he said. “We looked through all the data, and we just can’t see any difference.” Presently, Disney+, HBO Max, Apple TV+, and Prime Video are competing to get ahead in the streaming race.

Netflix shares tumbled more than 12% in after-hours trading but later recovered a bit and pre-market result points to a 9% drop at the opening of the session of Wednesday. Netflix has been underperforming the market this year. The streaming company is up less than 2% for the year, while the S&P500 index is up around 12%.