Netflix Beats Q1 Estimates, But Stock Drops

Netflix (NASDAQ: NFLX) has been a strong performer in 2024, extending its gains from mid-2022. The stock is up over 26% year-to-date. The company's new account-sharing policy appears to be a success story. The crackdown on password sharing led to a significant jump in subscribers in Q4 2023, with 13.1 million new additions. This surge solidified Netflix's lead in the streaming wars, widening the gap with Disney+ and Amazon Prime.

Now Netflix reported a strong Q1 with earnings and revenue exceeding expectations, but the company also announced a major change in its reporting metrics, sending its stock price down in after-hours trading.

Netflix Q1 2024 Earning Report

Netflix will no longer disclose quarterly subscriber numbers or average revenue per user (ARPU) starting next year. The company believes these metrics are less important now that it has a large subscriber base and is generating significant profits.

Netflix will prioritize revenue, operating margin, and engagement (viewing time) as its key financial metrics. This reflects the company's maturing business model, where subscriber growth is no longer the sole driver of success.

Netflix’s first-quarter results

• Total memberships: 269.6 million vs. expected 264.2 million
• Net income: Significantly higher this year at $2.33 billion, compared to $1.30 billion last year. This represents a growth of $1.03 billion.
• Earnings per share (EPS): Also up noticeably year-over-year, going from $2.88 per share to $5.28 per share. This translates to an increase of $2.40 per share.
• Revenue: Increased to $9.37 billion from $8.16 billion in the same period last year. This is a revenue growth of $1.21 billion.

Despite the positive earnings report, Netflix's stock price dropped around 4% in after-hours trading. This could be due to investor concerns about the lack of subscriber number transparency and the lower-than-expected Q2 subscriber growth forecast.

Potential Concerns

• This shift in focus might not sit well with all investors who were accustomed to relying on subscriber growth figures.
• The lack of forward guidance on subscriber numbers could make it harder to predict future performance.
• Investors will need to pay closer attention to revenue, profit margins, and engagement metrics to measure Netflix's health.

Beyond company-specific factors, broader economic conditions pose a potential challenge. The Federal Reserve's interest rate decisions, particularly if they remain high into 2025 to combat disinflation, could dampen the overall market, including Netflix.

Netflix Technical Analysis

Technically, Netflix's stock price has been consolidating since early March. Yet, Q1 2024 strong financial results could still push the price higher towards $700, even though Netflix's stock price dropped around 4%.

Netflix Recent Performance

• NFLX has significantly outperformed the S&P 500, up 19.6% and 51.7% in the last 3 and 6 months respectively.
• The share price recently hit a multi-year high of $639, but has since consolidated within a range of $639 to $600.
• Importantly, it's holding above the key 50-day moving average ($601.12) on daily chart, a strong trend filter.

Bollinger Bands are tightening, suggesting traders are still cautious.

A bearish gap may form on the chart, which is usually assessed as an obstacle to price growth

• The psychological level of $600 per NFLX share may act as resistance
• Rounding pattern is a sign of depleted demand.
  
  

Even if NFLX's stock price rebounds from the bottom of the channel, bulls will have to contend with technical obstacles (disappointing Q2 guidance; investors were also unhappy with the decision to stop reporting quarterly subscriber numbers next year). And also negative fundamental factors associated with the fact that the Fed will hold interest rates for a longer time.

What to Watch

• How will the lack of subscriber data impact investor sentiment?
• Will Netflix's new revenue streams like advertising and an ad-supported tier effectively replace subscriber growth as key metrics?
• What details will Netflix provide about its entry into video games and live sports partnerships?

Bottom Line On Netflix Earnings Report

Overall, Netflix's earnings report was mixed. While the company delivered strong financial results, the change in reporting metrics and lower Q2 subscriber growth expectations raise some concerns for investors. The coming quarters will be key in determining whether Netflix's new focus on profitability can sustain its impressive stock price performance.