Netflix (NFLX) posted strong first-quarter results and has “several” growth drivers ahead, but its decision to stop disclosing two key performance metrics starting next year likely contributed to a share-price selloff, BofA Securities said in a note e-mailed Friday.
Late Thursday, the streaming giant reported that its first-quarter revenue rose 15% year-over-year to $9.37 billion, while earnings jumped to $5.28 a share from $2.88, both topping market projections amid stronger-than-expected membership growth.
The company projected second-quarter revenue at $9.49 billion, trailing Wall Street’s $9.53 billion views at the time. It expects net subscriber additions to be down sequentially due to seasonality. Netflix said in a letter to shareholders that it will stop reporting quarterly membership numbers and average revenue per membership, or ARM, starting with its 2025 first-quarter results.
A lack of visibility into the two indicators likely dragged the stock lower in after-hours trade on Thursday, BofA analyst Jessica Reif Ehrlich said in the note. The company’s share price slumped 9.1% on Friday at market close.
“While still early, the potential concern is subscriber growth had significantly decelerated in 2022 (prior to the implementation of paid sharing), and this could be a harbinger of decelerating subscriber growth in the future,” the analyst wrote. “More positively, the company indicated a double-digit revenue growth target for 2025 with growing margin, which implies healthy growth.”
In the March quarter, ARM increased 1% year over year, or 4% on a currency-neutral basis. The company expects second-quarter global ARM to post growth from a year earlier on a FX-neutral basis. Netflix said it expected 13% to 15% revenue growth this year. BofA was previously looking for a 17% increase, according to the note.
Global paid net additions surged to 9.33 million in the first quarter from 1.75 million a year earlier, well above the consensus on Visible Alpha for a 4.8 million increase. BofA had projected a 5.1 million print. For a geographic viewpoint, net add strength was broad based, with each region topping the brokerage’s estimates, according to the note.
Netflix’s growth drivers include accelerating ramp of its “burgeoning” ad business, strong content slate for the remainder of this year, pricing, and continued benefit from password sharing, Ehrlich said.
The brokerage raised its price objective on the Netflix stock to $700 from $650 while reiterating its buy rating. “Supported by its world-class brand, leading global subscriber base, position as an innovator and increased visibility in growth drivers, we believe that Netflix should continue to outperform,” Ehrlich wrote.