What happened
Shares of Netflix (NFLX -0.62%) were getting a thumbs down from investors today after the streaming giant reported underwhelming subscriber growth in its first quarter and indicated that subscriber additions would be even weaker in the second quarter.
As of 9:44 a.m. EDT, the stock was down 7%.
Image source: Netflix.
So what
Netflix added just 4 million net new subscribers in the first quarter, its worst first quarter in at least six years. The result was also less than the 6 million subscriber additions that the company had forecast, and it projected only 1 million new subscribers in the second quarter, which would be the worst quarter of growth in its history as a streaming company. Management blamed a slowdown in new titles on production delays from the pandemic and also noted the pull-forward effect of the health crisis as it added 26 million new subs in the first half of 2020 as global lockdowns sparked strong demand for streaming entertainment.
Elsewhere, Netflix's numbers were strong, but subscriber growth is the most closely watched figure as investors see that as the best reflection of the company's long-term growth potential.
Revenue rose 24.2% to $7.16 billion, boosted by a recent price hike in the U.S., which was ahead of the company's own guidance at $7.13 billion. Operating income doubled to $1.96 billion as profits benefited from the delay in new content. Earnings per share jumped from $1.57 to $3.75, helped by a $253 million gain on debt, which was well ahead of the consensus at $2.97.
Now what
It's clear why the stock is down. Investors are understandably disappointed by the weak second-quarter guidance and lower-than-expected growth in the first quarter. However, management was confident that subscriber growth would return in the second half of the year when a "very strong" content slate will include new season of hit shows like Sex Education, The Witcher, and La Casa de Papel. It also said that churn was lower than a year ago, showing longtime customers are remaining loyal to the service.
Netflix's subscriber growth has historically been volatile and it's not unusual for the company to miss its guidance. One quarter like this is not a reason to sell the stock, especially as it remains the clear leader in the streaming industry.
