Netflix’s Q1 profit surges but subscriber numbers disappoint

The company added 4 million customers in first three months of the year missing analysts’ estimates of more than 6.2 million​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

Claire Foy plays Queen Elizabeth II with Matt Smith as Prince Philip in a scene from The Crown. Netflix

Netflix, the world's largest streaming company, reported a 140 per cent surge in first-quarter profit despite subscriber growth hitting an eight-year low.

The company missed its own subscriber growth forecast and attributed this to coronavirus-induced production delays.

Net income during the period stood at $1.7 billion after revenue grew by more than 24 per cent from a year ago to $7.1bn, exceeding analyst expectations of $5.7bn in revenue.

"The key is the business remains healthy ... and the business is still growing," said Spencer Neumann, the company's chief financial officer in a call with investors.

Net cash from operating activities stood at $777 million in the first quarter, compared with $260m during the same period last year.

Free cash flow for the quarter grew by 327 per cent to $692m.

Netflix added four million subscribers but missed its own forecast of six million and analyst estimates of more than 6.2 million.

This was the weakest start to the year since 2013.

The company, which recorded its strongest quarter in the three months through to March 30 last year, issued a warning that the coming quarter would be difficult.

It expects subscriber numbers to increase by a million from April to June – much lower than Wall Street’s expectations of 4.4 million new subscribers.

Net profit is expected to register a quarterly drop of more than 15 per cent to $1.4bn in the three months through to June 30, despite a marginal rise in revenue to more than $7.3bn.

Netflix’s shares fell by as much as 13 per cent on the weaker outlook.

"We believe paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays," Netflix said in its letter to shareholders.

However, it expects the new seasons of some of its biggest shows and a new movie line-up to deliver a strong second half.

“As we have noted previously, the production delays from Covid-19 in 2020 will lead to a 2021 slate that is more heavily second-half weighted with a large number of returning franchises,” it said.

“In the short-term, there is some uncertainty from Covid-19 ... in the long-term, the rise of streaming to replace linear TV around the world is the clear trend in entertainment.”

Netflix finished the quarter with a membership of about 208 million, up 14 per cent from a year ago but below its earlier forecast of 210 million.

“There is no doubt that this quarter was going to be the most painful for Netflix as consumers return to their normal behaviour ... because of the coronavirus vaccine,” said Naeem Aslam, chief market analyst at broker Avatrade.

“Netflix is not the only dominant player in town any more. Competition has become intense and the company needs to play hard.”

Competitors such as Walt Disney are spending billions to compete with Netflix. Disney+ trails Netflix despite its subscriber numbers crossing 100 million in March.

“It appears that Netflix started feeling the pinch of the end of the lockdown measures,” said Swissquote bank senior analyst Ipek Ozkardeskaya.