Netflix adds 9.33 million customers, says gains will be slow

(Bloomberg) — Netflix Inc. posted its best start to the year since 2020, attracting more new customers than expected thanks to a strong slate of original shows and a crackdown on password sharing.

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Netflix added 9.33 million customers in the first quarter of 2024, according to a statement released Thursday, nearly doubling the 4.84 million average analyst estimates. The company attracted new customers from around the world, showing particular strength in the US and Canada. These new subscribers also helped Netflix beat sales and profit forecasts.

Netflix recovered from a slowdown in 2021 and 2022 to grow at its fastest pace since the early days of the coronavirus pandemic. This is largely due to the crackdown on people using someone else’s account. The company estimated that more than 100 million people used an account they didn’t pay for. Although Netflix executives feared a backlash from customers, the company managed to convince millions of freeloaders to pay for access.

Despite the growth, Netflix shares fell as much as 7.4% in extended trading, falling as low as $565.50 before recovering much of the loss.

Expectations for Netflix’s first quarter have soared in recent days, with analyst after analyst publishing upbeat forecasts, and in its letter to investors on Thursday, the company said subscriber gains will be lower this period while revenue will increase by 16%. %.

Netflix also said it will stop reporting quarterly paid subscriptions and revenue per subscriber, starting in the first quarter of 2025. These metrics have been Wall Street’s main way of evaluating the company’s performance, but Netflix has tried to shift focus to traditional measures such as sales and profit. Management will continue to report on major subscriber milestones.

“The move to no longer publish quarterly subscriptions starting next year will not be well received,” Paolo Pescatore, founder and analyst at PP Foresight, said in an email. “More so given the subscriber growth the streaming king saw last year.”

These new customers had a lot to watch. Netflix has released a new hit every two weeks so far this year, including limited series like Fool Me Once and Griselda, dramas The Gentleman and 3 Body Problem and reality show Love Is Blind. The streaming service accounts for about 8% of the US TV audience – and is a leading TV network in most of the world’s major media markets.

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“With more than two people per household, on average, we have an audience of more than half a billion people,” stated the company in its letter. “No entertainment company has ever programmed on this scale and with this ambition before.”

Recent growth has pushed Netflix shares back to record levels, giving the company a market value of more than $260 billion. It set an all-time closing high of $691.69 in November 2021.

Some analysts fear that Netflix is ​​once again trading at a valuation that far exceeds the business’ fundamentals. The company reported sales of $9.33 billion, increasing 15% and beating estimates of $9.26 billion. Net income grew to $2.33 billion, or $5.28 per share, also above projections.

Those numbers are below companies with lower market caps, the boost from the crackdown on account sharing is temporary, and Netflix executives have been reluctant to put a firm timetable on when that growth will stop.

Read more: Netflix valuation is not a house of cards

However, even the most skeptical analysts were impressed with the company’s recent performance, raising their price targets for investors. To sustain its growth in the future, Netflix also launched a cheaper, advertising-supported version of its service aimed at cost-conscious customers. It also began investing in live programming, including stand-up specials, wrestling and an upcoming boxing match.

About 40% of new Netflix customers are selecting the advertising option in markets where it is available, the company said. The level of advertising is still minuscule compared to online video giants like YouTube.

(Adds analyst comment in seventh paragraph, updates shares.)

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