Netflix stock experienced a significant drop of up to 9.6% after the company provided a second quarter revenue forecast that fell short of Wall Street estimates. Netflix projected revenue of $9.49 billion for the upcoming quarter, missing consensus estimates of $9.51 billion. Additionally, the company announced its decision to cease reporting quarterly subscriber metrics, which are closely monitored by investors.
Despite the disappointing revenue forecast, Netflix reported first quarter earnings that surpassed expectations, with over 9 million new subscribers added in the quarter. The company’s revenue also exceeded Bloomberg consensus estimates, reaching $9.37 billion. Netflix attributed its revenue growth to various initiatives such as cracking down on password-sharing, introducing an ad-supported tier, and implementing price hikes on certain subscription plans. This strong performance contributed to a rise in profitability metrics, with operating margins improving to 28.1% for the first quarter.
Looking ahead, Netflix remains optimistic about its profitability, with operating margins expected to decrease slightly in the second quarter but still outperforming previous years. The company’s free cash flow also exceeded expectations in the first quarter, reaching $2.14 billion. Analysts anticipate further growth in average revenue per member (ARM) as the impact of ad-tier memberships and price hikes becomes more pronounced. Despite the recent stock decline, Netflix’s overall financial outlook remains positive as it continues to focus on expanding its subscriber base and implementing strategic revenue initiatives.