Netflix Shares Plunge After Q1 Earnings, First Subscriber Loss Since 2011

Netflix Inc NFLX reported first-quarter FY22 revenue growth of 9.8% year-over-year to $7.71 billion, missing the consensus of $7.93 billion.

Revenue growth was driven by an 8% year-over-year increase in average streaming paid memberships and a 2% year-over-year growth in ARM.

The operating income improved to $1.97 billion from $1.96 billion a year ago. The margin contracted by 240 bps to 25.1%.

EPS declined to $3.53 from $3.75 in 1Q21, beating the consensus of $2.90.

Global streaming paid partnership increased 6.7% Y/Y to 221.64 million. Global streaming paid net additions were down 200 thousand. The suspension of service in Russia and winding-down of all Russian paid memberships resulted in a -0.7 million impact on paid net adds.

Netflix’s net cash generated by operating activities was $923 million for the quarter, compared to $777 million in 1Q21. Free cash flow was $802 million.

The company finished Q1 with gross debt of $14.6 billion after repaying $700 million in senior notes. It had cash of $6.0 billion, and net debt was $8.6 billion at the end of the quarter, equating to a 1.3x LTM leverage ratio.

The company stated that “in the near-term, though, we’re not growing revenue as fast as we’d like. COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward. Now, we believe there are four main inter-related factors at work.”

2Q22 Outlook: Netflix expects revenue of ~$8.05 billion versus a consensus of $8.21 billion, operating margin of ~21.5%, and EPS of $3, versus a consensus of $3.01.

It expects Global streaming paid partnership to increase 5% Y/Y and Global streaming paid net addition to be down 2 million.

Price Action: NFLX shares are trading lower by 23.23% at $267.63 during the post-market session on Tuesday.

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