Courtesy Netflix
shares are falling sharply in late trading Tuesday after the streaming video company posted disappointing subscriber growth for the March quarter.
For the period, Netflix (ticker: NFLX) added four million net new subscribers, falling well short of the company’s guidance target of six million—and Netflix sees just one million net additions in the June quarter. Netflix finished March with 208 million subscribers, up 14% from a year ago.
“We believe paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays,” Netflix said in its quarterly letter to shareholders. “We continue to anticipate a strong second half with the return of new seasons of some of our biggest hits and an exciting film lineup. In the short-term, there is some uncertainty from Covid-19; in the long-term, the rise of streaming to replace linear TV around the world is the clear trend in entertainment.”
For the March quarter, Netflix reported revenue of $7.16 billion, up 24% from a year ago, and slightly ahead of the company’s projection of $7.1 billion. Profits were $3.75 a share, ahead of the company’s estimate of $2.97 a share. Netflix sees June quarter revenue of $7.3 billion, just below the current Wall Street consensus at $7.4 billion, with profits of $3.16 a share, above the current Street estimate at $2.69 a share.
Profits in the quarter included a $253 million noncash foreign-exchange related gain tied to the company’s euro denominated debt.
Netflix said average revenue per membership was up 6% year-over-year, or 5% adjusting for currency. Operating income was $2 billion, more than doubling from a year ago and ahead of expectations due to the timing of its content spend, Netflix said.
Netflix had $692 million in free cash flow in the quarter and said it expects to be cash-flow break-even for the full year. Netflix also said its board has authorized a $5 billion stock buyback program, with purchases to start in the current quarter.
The company said the lower-than-expected net adds in the quarter was tied specifically to additions, with churn, or cancellations, in line with expectations. Netflix said it does not believe that competitive offerings were a material factor in the variance from expectations.
“We anticipate paid membership growth will reaccelerate in the second half of 2021 as we ramp into a very strong back half slate,” the company said. “We are optimistic about the future and believe we are still in the early days of the adoption of internet entertainment, which should provide us with many years of growth ahead.”
The company also said that it paid down its $500 million debt that came due in the quarter, reducing total gross debt to $15.7 billion. Netflix repeated its previous long-term goal of maintaining $10 billion to $15 billion of gross debt.
Netflix is down 11% in late trading, to $489.12.
Write to Eric J. Savitz at eric.savitz@barrons.com
