Neflix Q1 - Misses On Subscribers Growth

After the market closed on Tuesday night Netflix announced their latest set of quarterly numbers. They beat both revenue and profit expectations but badly missed subscriber growth forecasts. As a result Netflix shares dropped by 8% during the trading session yesterday.

The company and Wall Street had pencilled in subscriber growth of 6 million people for the period, but only managed 3 million. Ouch. For the coming quarter, they are only expecting subscriber growth of 1 million. The lower growth is partly due to a normalisation after massive growth numbers during the global lockdowns.

This is not the first time that the share price of Netflix has dropped after reporting a period of muted subscriber growth. Each time has been a good buying opportunity, and I would say that this time is one too. The company has shown that new customers are sticky. Every year or so, they raise their fees by around $1 per month, but don't see much impact on their subscriber base. As Paul regularly says in the office, Netflix will soon have 1 billion subscribers, all paying $50 a month. That his "stretch" goal for them, at least. They currently have 207 million subscribers. Still a way to go!

We also think that concerns about competition from rival streaming media services is overblown. They are all cheap relative to the value that they add to your life, so we expect people to subscribe to two or three services at the same time. Research noted that 92% of subscribers to other streaming services still kept their Netflix account. Their content offering is clearly compelling.

Over the last year, the company has also made another fundamental shift. It has gone from needing to borrow money to fund content production to now having spare cash each month, allowing them to do share buy-backs. Sounds good to me.