Netflix Stock Falls as Earnings Miss: Here’s What Singapore Investors Need to Know

April 20, 2023

Netflix

During the depths of the Covid-19 pandemic, some of the biggest winners in the US stock market were growth stocks.

This included the dominant streaming giant Netflix Inc (NASDAQ: NFLX). However, Netflix shares are now more than 50% below their all-time high (of close to US$700) that was set in late 2021.

Netflix also happens to be one of the first tech companies to report its numbers early in the earnings season.

The company reported its Q1 2023 results after the market close on Tuesday (18 April).

So, for Singapore investors who love Netflix, what should they know about the firm’s latest numbers? Let’s find out.

Revenue growth of below 4% but solid free cash flow

Netflix has seemingly become a mature company with the release of its latest numbers. The high growth revenue rates normally seen in growth stocks was noticeably absent for Netflix.

That’s because the company posted just a 3.7% year-on-year rise in revenue to US$8.16 billion in Q1 2023.

Despite management encouraging investors to focus less on net new subscriber additions, Netflix announced that it added 1.75 million net new subscribers during the period.

This was about 500,000 less than analysts had estimated for the quarter.

Despite that, one of the big standouts from the period was Netflix’s free cash flow – which hit US$2.12 billion, soaring from just US$923 million in the year-ago period.

Operating income of US$1.7 billion during the period also came in higher than Netflix’s own prior forecast of US$1.6 billion.

The Asia Pacific region was among company’s fastest-growing regions (on an FX-neutral basis its revenue was up 10% year-on-year) while average paid memberships on the continent increased by 17% year-on-year.

Password sharing crackdown delayed

Netflix’s strategy to launch both a cheaper advertising tier and “paid sharing” – which was meant to crack down on password sharing by users – had mixed results.

It only launch its “paid sharing” service in four countries during the first quarter – Canada, New Zealand, Portugal, and Spain.

Its launch in its biggest market – the US – will be shifted into the second quarter.

As readers can see below, Netflix (along with YouTube) still leads the way in terms of its share of viewing across key markets.

Netflix share viewing Q1 2023

Source: Netflix Inc Q1 2023 shareholder letter

Content spending to be flat in 2024

One of the key factors for Netflix’s recovery from its lows over the past six months has been its slight return to growth in terms of subscriber numbers.

In addition, its free cash flow and operating cash flow positive numbers are also enticing investors who realise this is actually a streaming company that can operate profitably.

That’s a rare commodity in this market, where most streaming businesses are massively loss-making.

Netflix management did state that its long-term goals remain the same; to produce double-digit revenue growth, expand operating margins, and deliver growing positive free cash flow.

Those goals should be helped by the fact that the company said it expects 2024 spend on content to be flat from 2023 – which is projected to be US$17 billion.

With an increasingly competitive market, though, and the uncertainty of how the password sharing crackdown will go in the US, investors should monitor closely what Netflix says (and reports) in its coming quarters.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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