Netflix reports mixed revenue as password cracking to expand

April 18 (Reuters) – Netflix Inc ( NFLX.O ) beat Wall Street’s first-quarter revenue estimates but gave a lighter-than-expected forecast on Tuesday, demonstrating the challenges the mature streaming service faces in its pursuit of growth.

The company said it moved a broader rollout of a plan to crack down on unsanctioned password sharing into the second quarter to make improvements, delaying some financial benefits, but said it was pleased with the results so far.

As the streaming video pioneer faces signs of market saturation, it is looking for new ways to make money, such as the password breach and a new ad-supported service.

Revenues and earnings for the first quarter came roughly in line with average analyst estimates from Refinitiv. Earnings per share reached $2.88 on revenue of $8.162 billion.

“We’re growing and we’re profitable,” Co-Chief Ted Sarandos said in the company’s post-earnings video interview. “We have a clear path to accelerate growth in both revenue and profit, and we are executing it.”

Shares of Netflix fell as much as 11% in after-hours trading after the report, but rebounded to 1.4%.

Netflix serves as a bellwether for the streaming industry, where growth has slowed as competition has increased.

From January to March, Netflix added 1.75 million streaming subscribers, missing analyst estimates of 2.06 million additions.

PP Foresight analyst Paolo Pescatore described the first quarter results as mixed.

“Netflix is ​​a mature business that reinforces less reliance on subscriber growth. However, this metric still moves the needle for key stakeholders,” he said.

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The company began rolling out its password sharing solution – which offers a “paid sharing” option – in 12 countries in February, but is delaying the expansion.

“We believe it will result in a better outcome for our members and our business,” the company said. Netflix also said it was “on track to meet our financial targets for all of 2023.”

The crackdown on password sharing will begin in the U.S. during the current quarter, Netflix said.

For April through June, the company forecast $8.242 billion in revenue and $2.86 in diluted EPS. Wall Street had estimated $8.476 billion in revenue and $3.05 in diluted EPS.

Netflix is ​​also moving to live streaming. The company annoyed fans of the dating show “Love is Blind” on Sunday when a reunion special that was meant to be shown live was unavailable. The crash was due to a “bug” that has been fixed, Co-CEO Greg Peters said Tuesday.

A year ago, Netflix lost 200,000 subscribers – its first decline in subscribers in more than a decade, sending shares tumbling and resetting Wall Street’s expectations for the sector.

Netflix added nearly 9 million subscribers in 2022, half as many as the 18 million achieved the year before, with much of the growth coming from Asia, research firm MoffettNathanson notes. The gains it made in Asia and Latin America have impacted average revenue per user, prompting Netflix to make changes to its business model, the firm said.

The company introduced a cheaper version of the service with ads in 12 countries in the fourth quarter.

UBS media analyst John Hodulik wrote that the password-sharing breach could well fuel Netflix’s nascent advertising business, as it drives those “sharers” to the cheaper version of the service.

Sarandos said Netflix hopes Hollywood studios can reach a “fair and equitable” deal with writers to avoid a strike, but he also noted the company has access to programming from around the world it can offer if US-based production is disrupted .

Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles Editing by Peter Henderson and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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