Netflix Forecast Misses Wall Street Consensus, Shares Drop

Netflix Inc on Tuesday reported first-quarter revenue and earnings roughly in line with Wall Street expectations but offered a forecast below analyst estimates for the next three months.

Shares of Netflix fell 9.3% to $302.43 in after-hours trading.

The streaming video pioneer began to reap the benefits of a crackdown on password sharing and the introduction of an ad-supported tier.

From January through March, Netflix posted diluted earnings of $2.88 per share, compared with Wall Street's forecast of $2.86. The company posted revenue of $8.162 billion, in line with analyst estimates from Refinitiv.

Looking ahead, Netflix forecast $8.242 billion in revenue and $2.86 in diluted EPS for the second quarter. Wall Street had been projecting $8.476 billion for revenue and $3.05 for diluted EPS.

Netflix serves as a bellwether for the streaming industry, in which growth has slowed as competition has heated up.

The company added 1.75 million subscribers in the quarter, missing analyst estimates of 2.06 million additions.

A year ago, Netflix lost 200,000 subscribers - its first subscriber decline in more than a decade, sending its stock reeling and resetting Wall Street's expectations for the sector.

Netflix added nearly 9 million subscribers in 2022, half as many as the 18 million gained in the prior year, with much of that growth coming from Asia, notes research firm MoffettNathanson. The gains it made in Asia and Latin America have impacted the average revenue per user, spurring Netflix to make changes to its business model, the firm said.

The company introduced a lower-priced version of its service with ads in 12 countries in the fourth quarter. MoffettNathanson estimates that the lower-priced ad-supported tier will reach nearly 10 million subscribers by the end of 2023.

Netflix also officially began rolling out its solution for password-sharing in 12 countries in February, after testing "paid sharing" in Latin America. The company has said 100 million households are sharing passwords, including about 30 million households in the U.S. and Canada.

If Netflix could convert 100% of those password-sharers, that would generate $4.4 billion in incremental revenue, according to MoffettNathanson estimates.

UBS media analyst John Hodulik wrote that the password- sharing crackdown could well fuel Netflix's nascent advertising business, as it drives these "sharers" to the lower-priced version of the service.