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Netflix (NFLX) Q1 Earnings Beat, Revenues Rise Y/Y on User Gain
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Netflix (NFLX - Free Report) reported first-quarter 2024 earnings of $5.28 per share, which beat the Zacks Consensus Estimate by 17.07%. The figure surged 83.3% from the year-ago quarter.
Revenues of $9.37 billion increased 14.8% year over year and beat the consensus mark by 1.18% as the streamer leaned on revenue initiatives like its crackdown on password-sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.
On the ads front, ad-tier memberships increased 65% quarter over quarter. The ads plan now accounts for 40% of all Netflix sign-ups in the markets it has offered. For advertisers, the company continues to focus on measurement solutions, including new partnerships with Kantar and Lucid for brand awareness and recall, and Nielsen Catalina Solutions for sales lift.
At the end of the first quarter, Netflix had 269.6 million paid subscribers across more than 190 countries globally, up 16% year over year. Netflix attracted new customers from all over the world, showing particular strength in the United States and Canada.
This Zacks Rank #3 (Hold) company reported an increase of 9.33 million paid subscribers globally in the first quarter, with a rise of 1% in average revenue per membership (ARM) on a reported basis and 4% growth on foreign-exchange neutral basis in the first quarter. It had gained 1.75 million paid subscribers in the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For the first quarter of 2024, Netflix had guided paid net sub additions to be down sequentially (reflecting seasonality as well as possible pull forward from the strong fourth-quarter 2023 results) but up year over year by 1.8 million.
The company credited gains to the strength of its intellectual property, including original series like Griselda (66.4 million views) and 3 Body Problem (39.7 million views), another successful live-action adaptation of an animated series called Avatar: The Last Airbender (63.8 million views) best in class reality TV with Love Is Blind Season 6 (20 million views), true crime with American Nightmare (50.2 million views) and stand up with Dave Chappelle: The Dreamer (18.4 million views).
The U.K. content had a stand-out quarter with Fool Me Once (98.2 million views), The Gentlemen (61 million views), One Day (36 million views) and Ricky Gervais: Armageddon (12.7 million views).
The company also cited strong demand for original Korean titles, including A Killer Paradox Season 1 (13.6 million views), Queen of Tears (14.2 million views) and Physical 100 Season 2 (9.2 million views). Berlin Season 1 (56.7 million views), part of the La Casa de Papel franchise, and Alpha Males Season 2 (8.1 million views) from Spain also performed well.
Netflix is now looking to expand into new areas, such as live events, in a bid to cement its dominance in the streaming age.
In January 2024, the company signed a $5 billion deal to stream WWE’s flagship wrestling show, Raw, marking the first time in more than three decades that the program will not be broadcast live on a traditional TV channel. Netflix has also partnered with Rockstar Games’ Grand Theft Auto, the wildly popular action-adventure video game franchise, to further push into the video game space.
NFLX surprised investors by disclosing in a shareholder letter that it will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025, a move that will make it more difficult to track the video streaming service's growth or contraction.
The company still intends to give annual updates on total subscribers. The renewed strategy indicates that Netflix is trying to get investors to focus on long-term trends rather than three-month increments that can be affected by short-term factors, such as programming changes and household budgetary pressure that cause temporary cancellations.
While tech giants like Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do.
Disney (DIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures, while Warner Bros. Discovery reports a combined number for its Max and Discovery+ platforms. Paramount Global also reveals subscriber figures for its flagship platform, Paramount+.
Shares of NFLX have returned 25.4% in the year-to-date (YTD) period and outperformed Apple, Amazon, Disney and the Zacks Consumer Discretionary sector. While Amazon and Disney have returned 18% and 24.5% YTD, shares of Apple and the sector have lost 13.2% and 3.9%, respectively.
Netflix’s Segmental Revenue Details
United States and Canada (UCAN) reported revenues of $4.22 billion, which rose 17.1% year over year and accounted for 45.1% of total revenues. ARPU increased 6.9% from the year-ago quarter.
The paid subscriber base for UCAN increased 11.1% from the year-ago quarter to 82.66 million. The company gained 2.53 million paid subscribers compared with the year-ago quarter’s gain of 0.102 million.
Europe, Middle East & Africa (EMEA) reported revenues of $2.95 billion, which increased 17.5% year over year and accounted for 31.6% of total revenues. ARPU increased 0.3% from the year-ago quarter.
The paid subscriber base for EMEA climbed 18.6% from the year-ago quarter to 91.73 million. Netflix gained 2.91 million paid subscribers compared with the year-ago quarter’s net gain of 0.64 million.
Latin America’s (LATAM) revenues of $1.16 billion increased 8.9% year over year, contributing 12.4% of total revenues. ARPU decreased 3.6% from the year-ago quarter.
The paid subscriber base for LATAM rose 15.7% from the year-ago quarter to 47.72 million. It gained 1.72 million paid subscribers in the reported quarter, while the company lost 0.45 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.02 billion increased 9.6% year over year and accounted for 10.9% of total revenues. ARPU decreased 8.5% year over year.
The paid subscriber base for APAC jumped 20.3% from the year-ago quarter to 47.5 million. The company added 2.15 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 17.8% year over year to $654.3 million. As a percentage of revenues, marketing expenses expanded 200 basis points (bps) to 7%.
Operating income increased 53.6% year over year to $2.63 billion. Operating margin expanded 710 bps on a year-over-year basis to 28.1%.
Balance Sheet & Free Cash Flow
Netflix had $7.02 billion of cash and cash equivalents as of Mar 31, 2024 compared with $7.11 billion as of Dec 31, 2023.
Total debt was $14.01 billion as of Mar 31, 2024 compared with $14.54 billion as of Dec 31, 2023.
Streaming content obligations were $24.2 billion as of Mar 31, 2024 compared with $21.71 billion as of Dec 31, 2023.
Netflix reported a free cash flow of $2.13 billion compared with a free cash flow of $1.58 billion in the previous quarter.
During the quarter, NFLX paid down $400 million of senior notes with cash on hand and repurchased 3.6 million shares for $2 billion.
Guidance
For the second quarter of 2024, Netflix forecasts revenues to increase 16%, which equates to 21% growth on a F/X neutral basis, due to price changes in Argentina and the devaluation of the local currency relative to the U.S. dollar.
The company anticipates total revenues to be $9.491 billion, suggesting growth of 15.9% year over year. The consensus mark for revenues is pegged at $9.26 billion, lower than the company’s expectation.
NFLX has projected earnings of $4.68 per share, suggesting growth of 42.2% year over year. The Zacks Consensus Estimate for the same is pegged at $4.51 per share, currently lower than the company’s expectation.
The quarterly operating margin is projected at 26.6% compared with the 22.3% reported in the year-ago quarter.
The company expects paid net additions to be lower in second-quarter 2024 compared with the first quarter, due to typical seasonality. It forecasts global ARM to be up year over year on a F/X neutral basis in the second quarter.
For full-year 2024, Netflix expects healthy revenue growth of 13-15% based on F/X rates at the end of the first quarter of 2024. The company now expects full-year 2024 operating margin to be 25% (based on F/X rates as of Jan 1, 2024), up from the prior forecast of 24%.
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Netflix (NFLX) Q1 Earnings Beat, Revenues Rise Y/Y on User Gain
Netflix (NFLX - Free Report) reported first-quarter 2024 earnings of $5.28 per share, which beat the Zacks Consensus Estimate by 17.07%. The figure surged 83.3% from the year-ago quarter.
Revenues of $9.37 billion increased 14.8% year over year and beat the consensus mark by 1.18% as the streamer leaned on revenue initiatives like its crackdown on password-sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.
On the ads front, ad-tier memberships increased 65% quarter over quarter. The ads plan now accounts for 40% of all Netflix sign-ups in the markets it has offered. For advertisers, the company continues to focus on measurement solutions, including new partnerships with Kantar and Lucid for brand awareness and recall, and Nielsen Catalina Solutions for sales lift.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote
Subscriber Growth Drives Revenues in Q1
At the end of the first quarter, Netflix had 269.6 million paid subscribers across more than 190 countries globally, up 16% year over year. Netflix attracted new customers from all over the world, showing particular strength in the United States and Canada.
This Zacks Rank #3 (Hold) company reported an increase of 9.33 million paid subscribers globally in the first quarter, with a rise of 1% in average revenue per membership (ARM) on a reported basis and 4% growth on foreign-exchange neutral basis in the first quarter. It had gained 1.75 million paid subscribers in the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For the first quarter of 2024, Netflix had guided paid net sub additions to be down sequentially (reflecting seasonality as well as possible pull forward from the strong fourth-quarter 2023 results) but up year over year by 1.8 million.
The company credited gains to the strength of its intellectual property, including original series like Griselda (66.4 million views) and 3 Body Problem (39.7 million views), another successful live-action adaptation of an animated series called Avatar: The Last Airbender (63.8 million views) best in class reality TV with Love Is Blind Season 6 (20 million views), true crime with American Nightmare (50.2 million views) and stand up with Dave Chappelle: The Dreamer (18.4 million views).
The U.K. content had a stand-out quarter with Fool Me Once (98.2 million views), The Gentlemen (61 million views), One Day (36 million views) and Ricky Gervais: Armageddon (12.7 million views).
The company also cited strong demand for original Korean titles, including A Killer Paradox Season 1 (13.6 million views), Queen of Tears (14.2 million views) and Physical 100 Season 2 (9.2 million views). Berlin Season 1 (56.7 million views), part of the La Casa de Papel franchise, and Alpha Males Season 2 (8.1 million views) from Spain also performed well.
Netflix is now looking to expand into new areas, such as live events, in a bid to cement its dominance in the streaming age.
In January 2024, the company signed a $5 billion deal to stream WWE’s flagship wrestling show, Raw, marking the first time in more than three decades that the program will not be broadcast live on a traditional TV channel. Netflix has also partnered with Rockstar Games’ Grand Theft Auto, the wildly popular action-adventure video game franchise, to further push into the video game space.
NFLX surprised investors by disclosing in a shareholder letter that it will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025, a move that will make it more difficult to track the video streaming service's growth or contraction.
The company still intends to give annual updates on total subscribers. The renewed strategy indicates that Netflix is trying to get investors to focus on long-term trends rather than three-month increments that can be affected by short-term factors, such as programming changes and household budgetary pressure that cause temporary cancellations.
While tech giants like Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do.
Disney (DIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures, while Warner Bros. Discovery reports a combined number for its Max and Discovery+ platforms. Paramount Global also reveals subscriber figures for its flagship platform, Paramount+.
Shares of NFLX have returned 25.4% in the year-to-date (YTD) period and outperformed Apple, Amazon, Disney and the Zacks Consumer Discretionary sector. While Amazon and Disney have returned 18% and 24.5% YTD, shares of Apple and the sector have lost 13.2% and 3.9%, respectively.
Netflix’s Segmental Revenue Details
United States and Canada (UCAN) reported revenues of $4.22 billion, which rose 17.1% year over year and accounted for 45.1% of total revenues. ARPU increased 6.9% from the year-ago quarter.
The paid subscriber base for UCAN increased 11.1% from the year-ago quarter to 82.66 million. The company gained 2.53 million paid subscribers compared with the year-ago quarter’s gain of 0.102 million.
Europe, Middle East & Africa (EMEA) reported revenues of $2.95 billion, which increased 17.5% year over year and accounted for 31.6% of total revenues. ARPU increased 0.3% from the year-ago quarter.
The paid subscriber base for EMEA climbed 18.6% from the year-ago quarter to 91.73 million. Netflix gained 2.91 million paid subscribers compared with the year-ago quarter’s net gain of 0.64 million.
Latin America’s (LATAM) revenues of $1.16 billion increased 8.9% year over year, contributing 12.4% of total revenues. ARPU decreased 3.6% from the year-ago quarter.
The paid subscriber base for LATAM rose 15.7% from the year-ago quarter to 47.72 million. It gained 1.72 million paid subscribers in the reported quarter, while the company lost 0.45 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.02 billion increased 9.6% year over year and accounted for 10.9% of total revenues. ARPU decreased 8.5% year over year.
The paid subscriber base for APAC jumped 20.3% from the year-ago quarter to 47.5 million. The company added 2.15 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 17.8% year over year to $654.3 million. As a percentage of revenues, marketing expenses expanded 200 basis points (bps) to 7%.
Operating income increased 53.6% year over year to $2.63 billion. Operating margin expanded 710 bps on a year-over-year basis to 28.1%.
Balance Sheet & Free Cash Flow
Netflix had $7.02 billion of cash and cash equivalents as of Mar 31, 2024 compared with $7.11 billion as of Dec 31, 2023.
Total debt was $14.01 billion as of Mar 31, 2024 compared with $14.54 billion as of Dec 31, 2023.
Streaming content obligations were $24.2 billion as of Mar 31, 2024 compared with $21.71 billion as of Dec 31, 2023.
Netflix reported a free cash flow of $2.13 billion compared with a free cash flow of $1.58 billion in the previous quarter.
During the quarter, NFLX paid down $400 million of senior notes with cash on hand and repurchased 3.6 million shares for $2 billion.
Guidance
For the second quarter of 2024, Netflix forecasts revenues to increase 16%, which equates to 21% growth on a F/X neutral basis, due to price changes in Argentina and the devaluation of the local currency relative to the U.S. dollar.
The company anticipates total revenues to be $9.491 billion, suggesting growth of 15.9% year over year. The consensus mark for revenues is pegged at $9.26 billion, lower than the company’s expectation.
NFLX has projected earnings of $4.68 per share, suggesting growth of 42.2% year over year. The Zacks Consensus Estimate for the same is pegged at $4.51 per share, currently lower than the company’s expectation.
The quarterly operating margin is projected at 26.6% compared with the 22.3% reported in the year-ago quarter.
The company expects paid net additions to be lower in second-quarter 2024 compared with the first quarter, due to typical seasonality. It forecasts global ARM to be up year over year on a F/X neutral basis in the second quarter.
For full-year 2024, Netflix expects healthy revenue growth of 13-15% based on F/X rates at the end of the first quarter of 2024. The company now expects full-year 2024 operating margin to be 25% (based on F/X rates as of Jan 1, 2024), up from the prior forecast of 24%.