Netflix (NASDAQ:NFLX) Surprises With Q1 Sales, Increases Its users

Kayode Omotosho /
2024/04/18 4:12 pm EDT

Streaming video giant Netflix (NASDAQ: NFLX) beat analysts' expectations in Q1 CY2024, with revenue up 14.8% year on year to $9.37 billion. The company expects next quarter's revenue to be around $9.49 billion, in line with analysts' estimates. It made a GAAP profit of $5.28 per share, improving from its profit of $2.88 per share in the same quarter last year.

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Netflix (NFLX) Q1 CY2024 Highlights:

  • Revenue: $9.37 billion vs analyst estimates of $9.28 billion (1% beat)
  • EPS: $5.28 vs analyst estimates of $4.53 (16.7% beat)
  • Revenue Guidance for Q2 CY2024 is $9.49 billion at the midpoint, roughly in line with what analysts were expecting
  • Gross Margin (GAAP): 46.9%, up from 41.1% in the same quarter last year
  • Free Cash Flow of $2.14 billion, up 35.1% from the previous quarter
  • Global Streaming Paid Memberships: 269.6 million, up 37.1 million year on year
  • Market Capitalization: $265.6 billion

Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.

Consumer Subscription

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

Sales Growth

Netflix's revenue growth over the last three years has been unremarkable, averaging 10% annually. This quarter, Netflix reported mediocre 14.8% year-on-year revenue growth, in line with analysts' expectations.

Netflix Total Revenue

Guidance for the next quarter indicates Netflix is expecting revenue to grow 15.9% year on year to $9.49 billion, improving from the 2.7% year-on-year increase it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 14.1% over the next 12 months.

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Usage Growth

As a subscription-based app, Netflix generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Over the last two years, Netflix's users, a key performance metric for the company, grew 8.3% annually to 269.6 million. This is decent growth for a consumer internet company.

Netflix Global Streaming Paid Memberships

In Q1, Netflix added 37.1 million users, translating into 16% year-on-year growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Netflix because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).

Netflix ARPU

Netflix's ARPU has declined over the last two years, averaging 1%. Although the company's users have continued to grow, it's lost its pricing power and will have to make improvements soon. This quarter, ARPU declined 1% year on year to $34.76 per user.

Key Takeaways from Netflix's Q1 Results

This was a great quarter as Netflix beat analysts' estimates for nearly every metric we track: paid subscribers, revenue, operating income, EPS, and free cash flow. We were also glad it raised its operating profitability expectations as this quarter's margin expanded seven percentage points year on year, reaching 28%. The company's revenue outlook was in line with Wall Street's forecast.

A key thing to watch for Netflix in the coming quarters is its new ad-supported membership tier, where ad-supported members grew 65% from Q4 2023. Furthermore, over 40% of new signups came from this plan. This performance is certainly evidence its strategy is working.

Overall, this was a good quarter for Netflix. However, the market was likely pricing in loftier revenue numbers, and the stock is down 3.4% on the results. It currently trades at $589.76 per share.

So should you invest in Netflix right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.