Netflix posted 200K net loss in paid members but 10% higher revenue
Netflix lost 200,000 net streaming customers, compared to its forecast of a gain of 2.5 million to 4 million. However, not including the effect of Russia, it posted 0.5 million net adds as well as positive free cash flow.
However, the company made clear that it expects lower levels of streaming customers going forward. It said that it is experiencing “continued soft acquisition across all regions.” For example, for this quarter it now forecasts a net loss of 2 million paid memberships, vs. gaining 1.5 million a year ago.
This is potentially the most alarming portion of the shareholder letter. It represents a decline of almost 1% (0.90%) from 221.64 million global paid streaming members it posted in Q1. Their forecast assumes Netflix's current trends persist (such as slow acquisition and the near-term impact of price changes). What is clear here is that Netflix is also facing competition and market share forces that are eating into its membership declines. Moreover, people seem to be balking at the company's price hikes.
Projecting Revenue And Free Cash Flow Growth
Not everything was bad news. For example, Netflix still produced $7.868 billion in revenue for the quarter, 10.3% higher than the $7.163 billion it made a year ago. It was also 2.0% higher than the $7.7 billion in revenue from the prior quarter.
Moreover, Netflix reported that it generated $801.6 million in free cash flow (FCF). This was higher than the $691.7 million a year ago and the negative $569 million in cash burn last quarter. In addition, the company predicts it will produce 10% revenue growth in Q2 as well as have positive FCF this year. and a positive operating margin of between 19% and 20% for all of 2022.
Netflix is facing severe competition from many SVOD (subscription video on demand) operators, including YouTube, Hulu, Prime Video, Disney+, Paramount Plus, and many others. The company. However, the shareholder letter shows a chart from Nielson with two periods, May 2021 and Feb. 2022. It shows that Netflix's share rose from 6.0% in May 2021 to 6.4% in Feb. 2022.
Streaming is growing at a wild pace throughout the world, fueled by connectivity gains in many countries and the ever-expanding choices that consumers face. Nielson reports that US customers streamed the equivalent of 15 million hours of content in 2021.
That year was also the year of breakthrough for international streaming content. This is where Netflix has strong brand awareness compared to its competitors. Netflix is now producing films and TV in more than 50 countries with a high degree of integration in the local entertainment ecosystem, according to the shareholder letter. That should bode well for the company going forward.
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