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Netflix Q1 disappoints

April 19, 2023

By Chris Forrester

Netflix added 1.75 million new subscribers in the quarter to the end of March, lower than the analyst consensus expectations of 2.3 million net new additions.

Netflix is also somewhat putting back its ‘paid share’ scheme – i.e. making subs pay for shared passwords – as, perhaps not surprisingly, it has had a ‘cancel reaction’ in markets it has tried like Spain and Canada. The scheme offers the main Netflix user to add two more people outside of their homes to the plan for additional C$7.99 per month per person in Canada, NZ$7.99 in New Zealand, €3.99 in Portugal, and €5.99 in Spain. Netflix did not talk about the likely price for US sharing. The company believes it will eventually convert 20-30% of the ‘freebies’ to paid subs.

The US ad-supported tier is now used by 1.7 per cent of customers, up from 0.8 per cent in December 2022.

Other headlines:

  • $8.16 billion revenues, up 3.7 per cent y-o-y
  • Profit of $1.3 billion (down 18 per cent from $1.6 billion in 2022).
  • Total subs 232.5 million globally, up 4.9 per cent
  • Boosting video quality to 1080p
  • Q2 guidance of $8.24 billion revenue
  • $3.5 billion free cash-flow expected for 2023

“We’re pleased with the results of our Q1 launches in Canada, New Zealand, Spain and Portugal, strengthening our confidence that we have the right approach,” Netflix said in its Q1 earnings letter. “As with Latin America, we see a cancel reaction in each market when we announce the news, which impacts near term member growth. But as borrowers start to activate their own accounts and existing members add ‘extra member’ accounts, we see increased acquisition and revenue. For example, in Canada, which we believe is a reliable predictor for the US, our paid membership base is now larger than prior to the launch of paid sharing and revenue growth has accelerated and is now growing faster than in the US.”

Paolo Pescatore, TMT analyst at PP Foresight, said the quarter raised more questions than answers as Netflix pivots towards driving new revenue streams. “During this transition there will ongoing challenges and expect to see spikes in churn, net adds and ARPU with the rollout of new features and services,” he advises. “Netflix is a mature business reinforcing less reliance on subscriber growth. However, this metric still moves the needle for key stakeholders. It is putting all the building blocks in place for future revenue growth. This is a far longer term play, so we should not expect to see immediate success.”

Meanwhile Netflix will finally close its founding DVD by mail business by September.

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