Despite the healthy Q1 results, the stock down over 4% in after hours trading on a historic trading day. A lot of that comes from the billions in debt Netflix is carrying and the lower than estimated guidance for Q2 and going forward.
Coming after a recent price hike and with looming competition, the Q1 results were well above the 8.9 million net additional paid subscribers that the SVOD service had projected itself earlier. All of which means that Netflix has 148.9 million subscribers overall. The growth breaks down as 1.74 million new subs in the US and 7.86 million internationally.
That exceeds the 8.9 million net additional paid subscribers around the world, reaching 148.2 million overall, that Netflix itself had projected. That would be an 8% gain over the same quarter of 2018. It was expected 1.6 million of those would be in the U.S. and 7.3 million internationally.
The company reported total revenue of $4.5 billion for the quarter, exactly in line with internal forecasts and consensus estimates of analysts, which was up 22% from the same quarter a year ago. Earnings per share of 76 cents blew past consensus views of 57 cents and internal forecasts for 56 cents.
For the second quarter, Netflix is projecting that it will add another 5 million with 300,000 in the US and 4.7 million for the international segment. The expectation on the Street had been around 600,000 domestic subscribers added.
Also likely to prick Wall Street’s skin is the cash burn that the more than $17 billion in debt Netflix had this past quarter. With an injection of competition on the streaming horizon coming in the next year, Netflix’s free cash flow was -$460 million for Q1 2019. That’s almost double the -$287 million of Q1 2018
With additional understatement today, Netflix says expects that it will see “some modest short-term churn effect” as it works through a price increase. In counterpoint, the company Tuesday highlighted a strong slate of shows in the second half of the year including new seasons of Stranger Things, which has been dated July 4, 13 Reasons Why, The Crown, Orange Is The New Black and Money Heist as well as Michael Bay’s Six Underground and Martin Scorsese’s The Irishman.
The report also revealed that the company is actively looking for a new chief marketing officer to replace the departing Kelly Bennett. That new hire will report directly to chief content officer and pitch master Ted Sarandos, the shareholder letter said.
The numbers are being released in a competitive environment that suddenly seems transformed. Disney saw its stock rocket 11% on Friday to an all-time high after it wowed analysts at last Thursday’s investor day, detailing its road map to becoming a Netflix rival and no longer a content supplier.
Disney+ is far from the only new kid on the streaming block. Though short on details, Apple is entering the realm later this year with its AppleTV+ service. Revealed in part by CEO Tim Cook in late March, the venture will have programming from the likes of Oprah, Ronald D. Moore’s NASA drama For All Mankind, Crazy Rich Asians helmer Jon Chu, Steven Spielberg, Reese Witherspoon and Jennifer Aniston’s morning show dramedy, M. Night Shyamalan, Stephen King and J.J. Abrams and Aquaman himself Jason Momoa. Also planning to take a bit out of the Netflix pie, there is the WarnerMedia and Comcast streamers being planned for the next year or so.
Netflix reiterated that it does not fear this competition. In its letter to investors this afternoon, the company noted that Apple and Disney were both “world class consumer brands and we’re excited to compete”.
“The clear beneficiaries will be content creators and consumers who will reap the rewards of many companies vying to provide a great video experience for audiences,” Netflix added. We don’t anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings. We believe we’ll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing (similar to how US cable networks collectively grew for years as viewing shifted from broadcast networks during the 1980s and 1990s).”
Let’s see how that plays out this time next year when the field is fuller.