Netflix’s earnings reports today. Here’s what you need to know.

Shares of Netflix fell early in late trading on Tuesday after the streaming video service forecast a disappointing outlook for the second quarter.

First-quarter profit and revenue were mostly in line with Wall Street’s expectations, although the company added 1.75 million net new subscribers in the quarter, about 500,000 less than analysts had predicted.

Netflix shares fell as much as 9% in after-hours trading following the earnings report. After a half hour it was almost flat trading.

For the quarter, Netflix posted revenue of $8.17 billion, up 3.7%, and earnings per share of $2.88. The company forecasts revenue of $8.2 billion and earnings per share of $2.82. Wall Street consensus estimates called for $8.2 billion and $2.86 a share. The company has stopped short of providing a specific forecast for subscriber growth.

For the June quarter, Netflix sees revenue of $8.24 billion, up 3.4%, and earnings per share of $2.84; That’s below the old Wall Street consensus of $8.5 billion and $3.07 a share. The company said net additions paid in the quarter should be “roughly identical” to the first quarter, which would be below the Street consensus estimate of 3.7 million.

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On the other hand, the company raised its forecast for full-year free cash flow to at least $3.5 billion, from an earlier forecast of at least $3 billion.

Netflix also said it expects the US launch of “Paid Sharing,” its plan to block password sharing, in the second quarter. The company launched pay-sharing in four countries – Canada, New Zealand, Portugal and Spain – in the first quarter, and said it was “pleased with the results”. The company noted that average revenue per member globally fell 1% in the quarter from a year earlier. The company noted that its subscription base in Canada is now larger than it was prior to implementing fee sharing.

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The company said moving the paid share launch to the second quarter would result in “a better outcome for our members and our business.”

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Operating income in the latest quarter was $1.7 billion, beating the company’s forecast of $1.6 billion, reflecting “ongoing cost management and the timing of hiring and content spending.” The company sees operating income of $1.6 billion in the second quarter, with operating margin falling from 20% to 19%, largely due to the dollar’s appreciation against other currencies.

Netflix said it bought back 1.2 million shares during the quarter for $400 million.

Netflix’s long-term financial objectives remain unchanged — it seeks to generate double-digit revenue growth while expanding operating margins and delivering growing positive free cash flow. The company added that it expects constant currency revenue growth to accelerate in the second half of the year as the ad business grows as the pay-sharing plan rolls out. Netflix still expects a full-year operating margin of 18% to 20%.

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As for recent price cuts in some markets, the company has cut prices in India by 20% to 60% in December 2021, driving better engagement and 24% growth in currency neutral revenue in the country in 2022. That result is encouraging. The company cut prices in 116 countries in the first quarter, accounting for less than 5% of 2022 revenue.

On the subject of its recently introduced ad-supported subscription tier, Netflix said it was “pleased with our progress across all key dimensions: member experience, value for advertisers and incremental contribution to our business.” The company said engagement with the ads exceeded initial expectations. Netflix also said the ad-supported tier now balances 95% of its content globally with ad-free plans.

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Netflix today He also announced It will completely discontinue its original DVD-by-mail service in September.

“On September 29, 2023, we will send the last red envelope,” the company said on Twitter. “It has been a real pleasure and honor to offer movie nights to our wonderful members for 25 years. Thank you for being a part of this incredible journey, including this final season of Red Envelopes.”

Eric J. at [email protected] Write to Savitz

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