Netflix Q1 2022 Earnings Report Recap

^{Source: Predictions based on analysts' consensus from Visible Alpha}

Netflix (NFLX) Financial Results: Analysis

Netflix, Inc. (NFLX) reported Q1 FY 2022 earnings that were mixed relative to analyst expectations. Earnings per share (EPS) dramatically beat estimates; Netflix posted EPS of $3.53, a 5.9% decline year over year (YOY) but significantly ahead of the $2.89 that analysts predicted. Notably, however, this is the first quarter in over a year that Netflix has posted a YOY drop in quarterly EPS. Revenue matched analyst predictions exactly, marking the slowest pace of quarterly revenue growth for the company in at least three years. Global paid streaming memberships, also referred to as global paid streaming subscribers, came in at 221.6 million for the quarter, missing analysts' predictions by nearly 3 million.

Netflix shares were down more than 23% in after-hours trading following the earnings release, as of this writing. The company's shares have significantly underperformed the broader market in the past year, providing one-year trailing total returns of -37.1% compared with 7.2% for the S&P 500.

NFLX Global Paid Streaming Memberships

Netflix global paid streaming memberships came in well below analyst predictions. The company reported 221.6 million streaming memberships, below an anticipated 224.5 million. Netflix cited in its earnings release the fact that it has "relatively high household penetration" and that a major boost to its business from the COVID-19 pandemic obscured its true performance.

Netflix has prioritized increasing its streaming membership business globally, given that this is the company's primary source of revenue. As of the end of FY 2021, the company had roughly 222 million paid streaming subscribers across 190 countries.

However, attracting new subscribers is increasingly difficult as the streaming entertainment industry grows crowded and competitive. Major rivals to Netflix's streaming business include Apple Inc.'s (AAPL) Apple TV+, The Walt Disney Company's (DIS) Disney+, Amazon.com, Inc.'s (AMZN) Amazon Prime Video, and AT&T Inc.'s (T) HBO Max, among others.

NFLX Guidance

Netflix provided forecasts for key financial figures for Q2 FY 2022 in its Q1 earnings release. The company anticipates revenue of $8.1 billion, marking an improvement of 9.7% YOY. It also predicts diluted EPS of $3.00 and global streaming paid memberships of 219.6 million, a 5.0% gain YOY.

NFLX Earnings Call Recap

In an earnings conference call after results were announced, Chief Executive Officer (CEO) Reed Hastings said Netflix is exploring ways to add lower-priced advertising-supported subscription tiers, which is a radically different approach than the company's current model. Reed said the ad-supported tiers would probably be introduced in phases over the next several years. Despite missing estimates on streaming memberships, Netflix Chief Financial Officer (CFO) Spencer Neumann said on the call that the company expects to grow revenues and net new subscribers for fiscal year 2022.

Netflix's next earnings report (for Q2 FY 2022) is estimated to be released on July 18, 2022.