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Netflix signed up a record number of subscribers, but investors weren’t impressed

FILES-US-ENTERTAINMENT-FILM-TELEVISION-AWARD-NETFLIX
The digital entertainment streaming giant reported first-quarter results on Tuesday.
(Lionel Bonaventure / AFP / Getty Images)

Netflix signed up more new paying subscribers than expected during the first quarter, attracting 9.6 million new accounts during the period — the highest addition in the company’s history.

But investors shrugged off the good news, sending the stock lower in after-hours trading Tuesday as the streaming giant offered weak guidance for the coming quarter.

The numbers:

The Los Gatos, Calif.-based company reported robust earnings of 76 cents per share, easily beating guidance of 56 cents per share, with revenue coming in at $4.52 billion, outpacing estimates of $4.49 billion. The results marked significant growth from the year-ago quarter, which saw earnings of 64 cents per share on revenue of $3.70 billion.

Tuesday’s results beat Wall Street expectations. Analysts polled by FactSet had estimated earnings of 58 cents per share on revenue of $4.50 billion for the period.

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Markets tend to watch Netflix’s new subscriptions as the most reliable indicator of future profitability. For the quarter, the streaming giant brought in a record 9.6 million new paying subscribers, up nearly 16% from 8.3 million in the year-ago period.

The takeaway:

Despite the strong results, Netflix shareholders were spooked by less than stellar guidance for the second quarter.

Netflix, which has 148.9 million subscribers worldwide, predicted just 5 million new paid subscribers for next quarter, down from a gain of 5.5 million in the second quarter of last year. Analysts polled by FactSet estimated nearly 6 million net adds in the second quarter.

The company also forecast earnings of 55 cents per share for the quarter, down from 85 cents in the year-ago period.

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As a result, shares of Netflix dropped during after-hours trading on Tuesday. The stock was down 1.5% in after-hours trading after closing Tuesday 3% higher at $359.46.

The outlook:

Netflix suggested that some of the uncertainty over its financial outlook could be attributed to price hikes that were announced at the start of the quarter. “We see some modest short-term churn effect as members consent to the price change,” the company wrote in a note to shareholders.

The streaming giant announced in January that it would hike prices across the board for its U.S. customers, with the most popular plan rising to $12.99 a month from $10.99.

Netflix said that it is planning to disclose more information about its viewership data, which it has long kept secret. “We’ll be leaning into that more quarter by quarter,” said Reed Hastings, chief executive of Netflix, during an earnings call on Tuesday.

In recent months, Netflix has started releasing limited viewership data about a handful of its shows. The company continued the new practice on Tuesday, saying that its new nature series “Our Planet” that launched this month is expected to be seen by more than 25 million households in the first month of release.

“Triple Frontier,” the original movie directed by J.C. Chandor and starring Ben Affleck, has been seen by more than 52 million households in its first four weeks of release.

Netflix also said it would test “top 10” lists of its most-watched content in Britain but didn’t say whether it would roll out the initiative worldwide.

The quarter was a notable one for Netflix, as its original movie “Roma” took home three Academy Awards in February. It was the company’s strongest showing at the Oscars, though it ultimately lost out on the award for best picture.

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Though Netflix has dominated the industry, investors are closely watching the potential impact of Walt Disney Co.’s planned streaming service, Disney+. Disney shares surged while Netflix shares tumbled the day after the Burbank entertainment conglomerate unveiled its streaming plans. The company expects the service to reach 60 million to 90 million subscribers and become profitable in 2024.

Hastings signaled he wasn’t worried about the new service. “Great competition makes you better,” he said on Tuesday’s call.


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