With its first quarter results, Netflix Inc NFLX exceeded estimates on all fronts. Waiting for its streaming rivals to catch up, like legacy entertainment giant, Walt Disney Company DISNetflix has eclipsed them.
An impressive first fiscal quarter.
For the quarter ended March 31, Netflix reported revenue of $9.37 billion, beating LSEG’s estimate of $9.28 billion with revenue increasing nearly 16% year-over-year. Net income jumped significantly from the same quarter last year, when it amounted to $1.30 billion, or $2.88 per share, to $2.33 billion, or $5.28 per share .
Subscribers increased 16% year over year as Netflix added 9.3 million subscribers during the first three months of the fiscal year, fueled by the global crackdown on password sharing and the introduction of the ad tier option that is less expensive than the standard one. Netflix now has 269.6 million subscribers, surpassing the Street Account estimate of 264.2 million.
Revenue guidance fell slightly short of Wall Street estimates.
Despite an overwhelmingly stellar report, Netflix shares fell after the streaming giant released disappointing revenue guidance. During the second quarter, Netflix posted revenue growth of nearly 16% to $9.49 billion, coming in slightly below Visible Alpha’s $9.5 billion estimate. Netflix expects revenue to fall to $2.06 billion and EPS to $4.68.
For the full year, Netflix saw revenue growth between 13% and 15%. However, it raised its full-year operating margin forecast to 25% due to exchange rate movements.
A change in the dynamics of streaming warfare.
Starting next year, Netflix will no longer report quarterly subscriber earnings, implying that it wants its performance to be judged by mature financial metrics such as revenue, operating margin and free cash flow, along with engagement metrics to evaluate the customer satisfaction. The streaming wars have largely been defined by a race to grow subscribers, and Netflix is now changing the rules by choosing to focus more on profit growth. However, it will still announce major subscriber milestones once they are achieved.
Its rivals have spent a year in the chase and none have managed to reach the promised land of streaming. As Netflix continues to grow, it’s a tough moving target to capture. Disney expects to reach profitability on the streaming front by the end of the year, but Netflix is undoubtedly the winner of the streaming wars. Disney has also followed Netflix’s lead in trying to infuse magic into its streaming business, starting with cracking down on passwords.
Netflix won.
With its latest report marking its best start to 2020, Netflix showed its evolutionary ability and positioned itself for continued success in the competitive streaming space, which it still dominates. Even Disney CEO Bob Iger admitted that Netflix is ”the gold standard in streaming” and that it would be great if the world’s largest entertainment company could accomplish what Netflix has done on the streaming front.
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