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Netflix share price set to slide on slow start to the year

Netflix

The recovery in the Netflix share price since the 5-year lows last year looks set to come to a shuddering halt later today when US markets open after the release of their Q1 numbers after the bell last night.

Since hitting a 10-month high back in February the shares have struggled to maintain their recent momentum and last night’s modest miss on Q1 revenues of $8.16bn, and lower-than-expected Q2 guidance of $8.24bn, served to send the shares sharply lower in after-hours trading, although Q1 profits did come in slightly ahead of expectations at $2.88c a share.

Subscriber numbers went up by 1.75m to 232.5m, which was well below consensus expectations of 2.41m, which was disappointing.

On the face of it, this probably wouldn’t have been too much of a concern but for the composition of this quarter’s subscriber gains. In every region bar one, subscriber numbers fell short of market expectations, none more so than in Latin America which saw a decline of 450k, although this was more than offset by a gain of 1.46m in the Asia Pacific region.

On the plus side, there was a big improvement in free cash flow, up from $802m a year ago to $2.11bn, which for a company that has insisted for years that it wants to become a consistently cashflow positive business is a big improvement.

On guidance, Netflix said they expected to deliver Q2 revenues of $8.24bn, with an expectation of profits of $1.28bn or $2.84c a share.

Having rolled out paid sharing in Canada, New Zealand, and Portugal in addition to Latin America last year Netflix says it expects to roll this out more broadly in Q2, including in the US.

If current trends are any guide this could prompt some initial cancellations which could slow subscriber growth, however, if the name of the game is to maximise revenue, then there’s every chance that won’t unduly slow the overall trend to sustainable cash flow and steady margins.

Netflix says it expects to generate $3.5bn free cash flow for the full year 2023, up from the prior expectation of $3bn.

This is down to lower cash spent on content with the recent changes to its small and medium-sized films unit likely to have played a part in that change. The company is also winding up its DVD unit DVD.com later this year.

 


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