Netflix’s Q1 earnings beat expectations, but growth prospects raise concerns
Streaming giant Netflix reported its Q1 earnings, beating Wall Street estimates for revenue and earnings per share. However, the company’s forecast for Q2 fell short of expectations, highlighting the challenges it faces iNetflix’s (NFLX) first quarter earnings didn’t quite hit the mark, with revenue and subscriber growth both coming in a little bit lighter than expected. Netflix’s earnings and their take was similar to company’s results, mixed, with both giving it a 3 on Yahoo Finance’s Vibe Check scale. Both noted executives were upbeat about what lies ahead for the streamer, but overall, there was not enough detail to answer some investors’ lingering questions in it’s pursuit of growth.
The company also announced that it is delaying the wider launch of its plan to crack down on unsanctioned password sharing until Q2 to make improvements. While the move will delay some financial benefits, the company stated that it is pleased with the results so far.
As competition in the streaming industry intensifies, Netflix is looking for new ways to make money, such as the password crackdown and a new ad-supported service.
Shares of Netflix initially dropped as much as 11% in after-hours trade following the report but recovered to gain 1.4%.
Netflix serves as a bellwether for the streaming industry, and its growth has slowed as competition has intensified. From January through March, Netflix added 1.75 million streaming subscribers, missing analyst estimates of 2.06 million additions.
Share price chart
Let’s take a look at what happened in terms of the share price movement last night.
You can see clearly on this daily chart here if I transfer this onto a one hour chart. You can see the point at which it reported those earnings and that first power of trade was a stunning loss of almost 12% in total value of the company. Then came the rebound. The company price initially dropped in extended trade but recovered those losses in a matter of 40 minutes or so lifted by an upbeat post earnings video interview where the co-chief executive, Ted Sarandos said Netflix is growing and is profitable. He said they have a clear path to accelerate growth in both revenue and profit and are executing it.
Back to the daily chart just to look at where we’re going from here. Despite the fact we broke this rising line of support that we’ve seen since the 13th of July last year, I think this still is in place and in the longer term, measuring what we heard from the chief executive last night, longer term, the company is expecting to see more appreciable growth.
The shift to streaming eventually unseated traditional movie rental companies that focused on DVDs, such as Blockbuster which filed for bankruptcy in 2010.
“From the very beginning, our members loved the choice and control that direct-to-consumer entertainment offered, including the variety and quality of our titles and the ability to binge watch entire series,” Netflix said in a letter to shareholders Tuesday. “DVD paved the way for streaming, ensuring that so much of what we started will continue long into the future.”
The announcement came about an hour prior to the company’s first-quarter earnings report. Netflix shares traded lower the report, which revealed fewer people signed up for its service than analysts expected during the first quarter.
