Large companies that release their financial performance early in the reporting season often provide strong guidance for similar companies. $Netflix(NFLX)$ was the first to announce its Q1 performance after hours on April 18.
Judging from the comparison between the performance of the quarter and market expectations, this was an "exceeding expectations" financial report, but it dropped by 4% after hours, also signaling that investors have identified areas that require caution.
Investment highlights
Revenue growth 15% year-on-year , the best in two years, and an expected 13% to 15% growth in revenue for the fiscal year 2024. Netflix's revenue growth in 2024 depends on the results of combating shared accounts and the development of the advertising business;
Profit margin was raised, operating profit increased by 54% to $2.6 billion, operating profit margin increased by 7 percentage points year-on-year to 28%, also benefiting from the increase in the proportion of high-margin advertising business. The forecast operating profit margin for the whole year has been raised to 25%;
No longer providing guidance on subscription user growth for the next quarter, instead focusing on revenue growth as the main indicator for evaluating the company's overall development. This may have caused investor panic, leading to a significant drop after hours, although Netflix has laid sufficient groundwork in previous quarters and emphasized in numerous conference calls that the overall level of monetization is the company's most important consideration;
Investors may think that the "global user growth has reached its limit," Netflix can focus more on the strategy of improving monetization, possibly transforming the company's "growth" and "value," with clear growth still visible in 2024, the advertising business is in an upward trend, the launch of new businesses such as sports, and the addition brought about by cracking down on shared accounts.
Subsequently, the company will focus more on profitability, and strategies that may be adopted include: raising prices, platform integration, content library management, increasing the share of advertising, while also paying further attention to "cost savings," cutting content expenses, cautious asset write-downs, and so on.
The financial report release period coincides with the hawkish position of the Federal Reserve, prompting a pullback in the market to safety.
If the upcoming financial reports of major technology companies continue to be in such an atmosphere, there may be a risk of significant drops as long as aspects such as quarterly performance, company guidance, industry expectations fail to satisfy investors.
The 4% drop in Netflix after hours is not even considered a "collapse of emotion," rather it is more influenced by macroeconomic factors, such as the Israel-Palestine conflict.
Even on Wall Street, some investment banks raised their target prices early after the financial report was released, but Netflix and others may face a longer process to reach their previous highs.
Here is an overview of Q1 performance
Revenue of $9.37 billion, a 15% year-on-year increase, higher than the market expectation of $9.26 billion;
Operating profit increased by 54% to $2.6 billion, the operating profit margin increased by 7 percentage points year-on-year to 28%;
Net profit increased by 79% to $2.33 billion year-on-year;
Net addition of 9.33 million paid users, reaching 269.6 million, a 16% year-on-year increase, higher than the market expectation of 264.5 million;
The number of paid users in the largest market, North America, increased by 2.53 million, far exceeding the market expectation of an increase of 0.9886 million.
The Asia-Pacific region saw an increase of 2.16 million users, surpassing analysts' expectations of an increase of 1.48 million;
Members with subscription and advertising packages increased by 65% compared to the previous quarter of last year;
Free cash flow was $2.137 billion, higher than the market expectation
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