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  • Writer's pictureRealFacts Editorial Team

Netflix Plummits on Earnings Report

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After the market closed on Thursday, Netflix (NFLX) reported earnings which largely beat analysts' expectations. In the first quarter, Netflix reported earnings of $5.28 per share on sales of $9.37 billion, compared to analysts' predictions of $4.52 per share on sales of $9.28 billion. This marked an 83% year-over-year increase in earnings and a 15% rise in sales. The company experienced its third consecutive quarter of accelerating sales growth. Additionally, Netflix added 9.33 million subscribers in Q1 which far surpassed analyst estimates of 5.48 million. Despite strong Q1 performance, Netflix's stock plunged over 9% on Friday due to a weak sales forecast and the decision to cease reporting subscriber figures.

Starting in the first quarter of 2025, Netflix will stop reporting quarterly membership numbers and average revenue per membership. This shift reflects an attempted move from subscriber metrics to a greater emphasis on revenue, operating margin, free cash flow, and time spent on the platform as key customer satisfaction indicators. The decision also hints at a possible slowing in Netflix’s second wave of subscriber growth. This possibility is evidenced by the company's forecast of lower subscriber additions in the second quarter due to seasonality. This slowdown in subscriber growth may primarily be attributed to the recent crackdown on password sharing, resulting in a shift from freeloading password sharers to becoming paying customers.

Netflix is exploring avenues to expand its revenue streams including a focus on entering the gaming industry. During a segment on “Bloomberg Markets: The Close” Josh Caplan, Managing Partner at Konvoy Ventures, discussed the possibilities Netflix has in this space. He highlighted two primary reasons why Netflix is aiming to enter this domain. Caplan said, “One, this is additional revenue in a gaming entertainment industry that is incredibly lucrative.” The gaming industry boasts nearly a $200 billion market, while movies and TV combined total around $45 billion. He went on to say, “Secondly, this is a way to increase retention within Netflix as apps and all of their applications across mobile and abroad."

Investors should take these developments into consideration when assessing Netflix as a potential investment opportunity.

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