Netflix Stock Ebbs and Flows After Q1 2019 Earnings Report

Investors are fickle despite 22.2% year-over-year growth in the first quarter.

Netflix Stock Ebbs and Flows After Q1 2019 Earnings Report

Source: Netflix

Investors remained fickle after hearing Netflixs (NASDAQ: NFLX) first quarter earnings report yesterday, with Netflix stock ebbing and flowing since late last week. The report, however, had much to celebrate including revenue of $4.5 billion, a 22.2% increase year-over-year, and the highest quarterly paid net new additions in company history. During the first quarter, Netflix added net new members of 9.6 million, a 16 percent increase over the prior year.

Here are Netflix stock prices since Thursday:

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Date

Value per share

Thursday, April 11, 2019

$367.65

Friday, April 12, 2019

$351.14

Monday, April 15, 2019

$348.87

Tuesday, April 16, 2019 (7:59 p.m. EDT)

$359.46

For 20 years, weve had the same strategy: when we please our members, they watch more and we grow more, said Netflix in their April 16 shareholder letter.

With nearly 150 million paid members, Netflix is obviously doing something right and it is all about content, including movies like Bird Box, Triple Frontier and The Highwayman, documentaries including FYRE: The Greatest Party That Never Happened and Our Planet, and popular series like Stranger Things, 13 Reasons Why, Orange is the New Black, The Crown and La Casa de Papel. Netflix has also added unscripted programming like Nailed It! and non-English originals including Kingdom and Durante la Tormenta.

Additional highlights from the earnings report include:

  • Operating income was $459 million.
  • Operating margin was 10.2%.
  • Net income was $344 million, or $0.76 per share.
  • Global streaming paid memberships are now 148.86 million, a 25.2% increase year-over-year.
  • Average streaming paid memberships grew 26 percent, while average revenue per user decreased 2 percent due to exchange rates.
  • Streaming content obligations are $18.9 billion.

The company addressed coming price increases in the U.S., Brazil, Mexico and parts of Europe.

The response in the U.S. so far is as we expected and is tracking similarly to what we saw in Canada following our Q418 increase, where our gross additions are unaffected, and we see some modest short-term churn effect as members consent to the price change, said Netflix.

Other items of note are award wins, award nominations, the pending retirement of chief marketing officer Kelly Bennett and partnerships. Netflix distributes its streaming services through 10 different distributors. The company notes that these partnerships have been positive, driving incremental acquisition.

As always, Netflix also addressed the competition, including Apple and Disney who plan to market their own direct-to-consumer streaming video on demand services later this year. Both of these are highly visible, popular consumer brands with access to unique audiences and content. Netflix said it doesnt anticipate that these new entrants will materially affect their growth, but each service will have to continue to invest in content and provide an optimal user experience as cord cutting becomes more the norm than the exception.

Given all of this, why are Netflix investors so fickle? Perhaps because of Netflixs second quarter forecast:

  • Revenue of $4.928 billion, representing 26.1% growth year-over-year
  • Operating income of $616 million and operating margin of 12.5%
  • Net income of $249 million, or $0.55 per share, compared to $384 million, or $0.85 per share, in Q2 2018
  • Global streaming paid net additions of 5 million (0.3 million U.S. and 4.7 million internationally), compared to 9.6 million in this quarter

Insider Take:

Business Insider said that Netflix beat Wall Street estimates and Netflixs own guidance for revenue and earnings per share. However, Netflix is expecting a dramatic decrease in new paid subscribers in the second quarter. While their revenue will increase as a result of higher rates, retention and customer acquisition may be more challenging.

Competition may not be significantly higher in the second quarter, but it is likely to grow in the third and fourth quarters of this year. Netflix is one choice of many SVOD services available. While future growth may slow somewhat due to a variety of factors (e.g., effective tax rate, foreign exchange rates, competition, content costs, rate increases), Netflix still has a lot to offer consumers and those of us who are hooked are not likely to cancel their subscriptions anytime soon. After all, 150 million subscribers cant be wrong, can they?