Netflix Inc. (NFLX) delivered first quarter global net subscriber additions of almost 15.8 million. A mind-blowing number of new subscribers for the company, considering Netflix had guided for 7 million subscribers when it reported results in January. The company saw a clear one-time benefit from the impacts of the coronavirus, with many countries issuing shelter-in-place guidance. Despite the big beat, the share may be heading lower.
The massive subscriber growth in the first quarter may have come at the expense of future quarters. The company described it best in the shareholder letter, noting that some of the first quarter growth was probably pulled forward due to the lock-down effects of the coronavirus. As obvious as that may sound, it also means subscriber growth is likely to be weaker in the second half of the year.
The stock appears to be reacting to that weaker outlook, trading unchanged in the after-hours on April 21, despite the big net addition beat. Interestingly, the stock traded as high as $485 and then gave back all those gains. Recently, the equity has struggled to get over $450, and that price may continue to serve as a level of technical resistance. However, should the shares be able to rise above that resistance level, it is likely to race higher to $485. But the trends have been weakening going into earnings. The relative strength index has been trending lower since peaking at overbought levels at 73 on February 18; however, the stock went on to make a new high on April 16. Despite the new high in the price, the RSI made a lower high, and that is creating a bearish divergence pattern. It could suggest that Netflix is heading lower following results back to a region of support around a price of $385.
The company reported first quarter revenue of $5.77 billion, just edging out analysts’ consensus estimates of $5.76 billion. Meanwhile, earnings were less than expected at $1.57 per share versus estimates for $1.65 per share. Guidance for the second quarter came in ahead of estimates at $1.81 per share and revenue of $6.05 billion, versus estimates for $1.54 per share and $5.97 billion.
For the second quarter, the company guided net subscriber additions to 7.5 million. However, the second quarter has historically been the company’s most challenging. For example, in the second quarter of 2018 and 2019, the company had just 5.4 million and 2.7 million net additions, respectively.
Netflix Inc.’s blowout quarterly results haven’t been greeted with too much enthusiasm from investors amid concerns that the company will have trouble keeping up the wave of good news after getting a big initial bump due to global lockdown orders. Even as the company posted paid subscriber gains of 15.8 million, a record quarterly total according to FactSet, some analysts cautioned that things could get tougher from here for the streaming giant. Shares NFLX, -2.13% are down 1.1% in morning trading Wednesday. They initially surged in after-hours trading before pulling back.
He said that Netflix’s management also expects a drop in viewership and subscriber growth once people are more freely able to leave their homes, which could pressure numbers in the latter part of the year especially as executives say there is a lot of “guesswork” behind their forward-looking models.
The massive subscriber growth in the first quarter may have come at the expense of future quarters. The company described it best in the shareholder letter, noting that some of the first quarter growth was probably pulled forward due to the lock-down effects of the coronavirus. As obvious as that may sound, it also means subscriber growth is likely to be weaker in the second half of the year.
The stock appears to be reacting to that weaker outlook, trading unchanged in the after-hours on April 21, despite the big net addition beat. Interestingly, the stock traded as high as $485 and then gave back all those gains. Recently, the equity has struggled to get over $450, and that price may continue to serve as a level of technical resistance. However, should the shares be able to rise above that resistance level, it is likely to race higher to $485. But the trends have been weakening going into earnings. The relative strength index has been trending lower since peaking at overbought levels at 73 on February 18; however, the stock went on to make a new high on April 16. Despite the new high in the price, the RSI made a lower high, and that is creating a bearish divergence pattern. It could suggest that Netflix is heading lower following results back to a region of support around a price of $385.
The company reported first quarter revenue of $5.77 billion, just edging out analysts’ consensus estimates of $5.76 billion. Meanwhile, earnings were less than expected at $1.57 per share versus estimates for $1.65 per share. Guidance for the second quarter came in ahead of estimates at $1.81 per share and revenue of $6.05 billion, versus estimates for $1.54 per share and $5.97 billion.
For the second quarter, the company guided net subscriber additions to 7.5 million. However, the second quarter has historically been the company’s most challenging. For example, in the second quarter of 2018 and 2019, the company had just 5.4 million and 2.7 million net additions, respectively.
Netflix Inc.’s blowout quarterly results haven’t been greeted with too much enthusiasm from investors amid concerns that the company will have trouble keeping up the wave of good news after getting a big initial bump due to global lockdown orders. Even as the company posted paid subscriber gains of 15.8 million, a record quarterly total according to FactSet, some analysts cautioned that things could get tougher from here for the streaming giant. Shares NFLX, -2.13% are down 1.1% in morning trading Wednesday. They initially surged in after-hours trading before pulling back.
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“While the timing of a potential return to normalcy remains unknown, we expect some form of trend reversal to materialize as lockdowns are lifted and a portion of recent demand proves to have been pulled forward,” wrote Stifel’s Scott Devitt, who cut his rating on the stock to hold from buy in a note titled: “As Good As It Gets.”He said that Netflix’s management also expects a drop in viewership and subscriber growth once people are more freely able to leave their homes, which could pressure numbers in the latter part of the year especially as executives say there is a lot of “guesswork” behind their forward-looking models.
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