Shares of Netflix (NASDAQ:NFLX) plunged by as much as 8% on Friday following the company’s announcement of a second-quarter revenue forecast that fell short of expectations. The streaming giant also revealed its decision to discontinue reporting quarterly subscriber metrics, a move closely monitored by Wall Street.
Netflix projected second-quarter revenue of $9.49 billion, slightly below the consensus estimate of $9.51 billion. Additionally, the company stated that it would cease reporting quarterly membership numbers and average revenue per member starting next year, citing the evolving nature of its pricing and subscription plans across different regions.
Despite surpassing expectations with its first-quarter earnings, which saw the addition of over 9 million subscribers, Netflix’s stock experienced a significant downturn. The company’s revenue of $9.37 billion in the quarter exceeded Bloomberg consensus estimates of $9.27 billion, driven by initiatives such as cracking down on password-sharing and introducing an ad-supported tier.
While Netflix’s earnings per share of $5.28 outperformed analyst forecasts of $4.52, concerns lingered over the company’s second-quarter EPS guidance of $4.68, slightly above consensus calls for $4.54. Operating margins for the first quarter stood at 28.1%, up from 21% year-over-year, with the company expecting a slight decrease to 26.6% in the second quarter.
Despite strong profitability metrics and robust free cash flow of $2.14 billion in the quarter, investors expressed apprehension over Netflix’s decision to discontinue reporting key membership metrics. The company’s shift away from quarterly reporting raised questions about transparency and future growth prospects, contributing to the decline in its stock price.
Additionally, the growth of the ad-supported tier, which saw a 65% increase in memberships quarter-over-quarter, raised concerns about the impact on Netflix’s overall revenue and subscriber base. As Netflix navigates evolving market dynamics and adjusts its business model, investor sentiment remains cautious amidst uncertainty surrounding future financial performance and subscriber growth.
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