Last quarter investors forgot the negative cash-flow, forgot the soaring cost of content, forgot the rampant competition, and forgot fact that Netflix (NFLX) slashed its domestic subscriber growth expectations, and just bought-the-f##king-record-high because international subscriber growth soared. This quarter, however, they may be less gullible because that surge in international subscribers not only did not happen, but missed by a whopping 370K subs, missing both the street forecast of 3.9 million and the company’s own guidance of 3.7 million. Adding to the pain, domestic subscribers of 1.42 million also missed consensus of 1.59 million and the company’s forecast of 1.5 million.
Then, unlike last quarter, NFLX’s outlook was far less euphoric, and the company now sees Q2 EPS of 15c, 8c below consensus. Re the company now sees Q2 EPS of 15c, 8c below consensus. venue was also fractionally below expectations with the company expecting sales of 2.755BN in Q2, below the 2.76BN est.
Results summary:
1Q revenue $2.64b vs est. $2.65b
1Q GAAP EPS 40c vs 37c
1Q domestic streaming net adds 1.42 million, vs consensus est. 1.59MM vs company forecast 1.5MM
1Q international streaming net adds 3.53MM consensus est. 3.90m vs company forecast 3.7MM
2Q GAAP EPS forecast 15c vs est. 23c
2Q revenue forecast 2.755BNvs est. $2.76BN
The only silver lining in the report: Q2 subscriber additions, both domestic and international, are expected to once again come above consensus estimates.
2Q domestic streaming net adds 600K, est. 420.5k
2Q international streaming net adds 2.6 million est. 2.1MM
However, considering this quarter’s bad miss on guidance, will investors believe it?
Some additional details from the report:
Due to content (primarily House of Cards season 5) moving from Q1 to Q2, we had higher operating margins in Q1 (as forecasted) at 9.7% than our plan for the year (about 7%). We forecast operating margin at 4.4% in Q2, placing us on track to reach our 7% target for the full year.
The other effect of the content moves is lower net adds in Q1 compared to prior year (as expected) and heavier net adds in Q2 compared to prior year (about double). We have come to see these quarterly variances as mostly noise in the long-term growth trend and adoption of internet TV. For the first half of this year, for example, we expect to have 8.15 million net adds, compared to 8.42 million net adds in the first half last year
International net additions decreased 22% year over year, as we lapped our January 2016 launch of over 130 countries, and the accompanying early surge demand, in Q1 2016.
