Netflix Inc. NFLX-Q added fewer new customers than Wall Street expected in the first quarter and offered a forecast below analyst estimates for the next three months as it delayed a broader launch of its password-sharing crackdown.
Revenue and earnings for the first quarter, revealed in an earnings report on Tuesday, came in roughly in line with Wall Street expectations, according to analyst estimates from Refinitiv. Earnings per share hit US$2.88 with revenue of US$8.162-billion.
Shares of Netflix dropped as much as 11 per cent in after-hours trade after the report but recovered most of the losses to trade down less than 1 per cent.
From January through March, Netflix added 1.75 million streaming subscribers, missing analyst estimates of 2.06 million additions.
The company began rolling out its solution for password sharing in 12 countries in February. Netflix said it shifted a wider launch into the second quarter, which means it will not reap the benefits until later in the year.
“We believe it will result in a better outcome for our members and our business,” the company said. It also said it was “on track to meet our full year 2023 financial objectives.”
For April through June, the company forecast US$8.242-billion in revenue and US$2.86 in diluted EPS. Wall Street had been projecting US$8.476-billion for revenue and US$3.05 for diluted EPS.
Netflix serves as a bellwether for the streaming industry, in which growth has slowed as competition has intensified.
A year ago, Netflix lost 200,000 subscribers – its first subscriber decline in more than a decade, sending its stock reeling and resetting Wall Street’s expectations for the sector.
Netflix added nearly nine million subscribers in 2022, half as many as the 18 million gained in the prior year, with much of that growth coming from Asia, research firm MoffettNathanson noted. The gains it made in Asia and Latin America have affected the average revenue per user, spurring Netflix to make changes to its business model, the firm said.
The company introduced a lower-priced version of its service with ads in 12 countries in the fourth quarter.
Netflix also officially began rolling out its solution for password sharing in 12 countries in February. In its quarterly letter to shareholders, Netflix said it was “pleased” with the launch of its paid sharing effort and planned a broad rollout this quarter, including in the United States.
The company has said 100 million households are sharing passwords, including about 30 million households in the U.S. and Canada.
If Netflix could convert 100 per cent of those password sharers, that would generate US$4.4-billion in incremental revenue, according to MoffettNathanson estimates.
UBS media analyst John Hodulik wrote that the password-sharing crackdown could well fuel Netflix’s nascent advertising business, as it drives these “sharers” to the lower-priced version of the service.