A boost in subscribers and recent pricing changes pushed Netflix revenue up 14.8% to $9.3 billion during its first quarter of 2024, with net income surging by 77% to $2.3 billion.
But in a notable shift, the streamer said it would stop reporting quarterly memberships and average revenue-per-paid member figures starting at the beginning of 2025, saying it would focus instead on revenue, operating margins and “engagement” that better reflects “customer satisfaction.”
Despite beating Wall Street expectations for the quarter, shares slipped as much as 5% in after-hours trading on Thursday, a dip analysts attributed in part to weak full-year revenue guidance. Netflix forecast revenue growth of 16% in the second quarter but just 13% to 15% for the full year.
Here are the top-line results:
Net income: $2.3 billion, up 77% compared to $1.3 billion in the year-ago period.
Earnings per share: $5.28 per share, up from $4.51 per share expected analysts surveyed by Zacks Investment Research.
Revenue: $9.37 billion, up 14.8% year over year, compared to $9.26 billion expected by analysts surveyed by Zacks Investment Research.
Subscribers: Netflix added 9.3 million subscribers in the quarter for a total of 269.6 million globally, a 16% year over year increase.
Netflix’s operating income grew 54% to $2.6 billion and its operating margin rose seven percentage points to 28%. The company generated $2.1 billion in free cash flow during the quarter and had $2.2 billion in net cash from operating activities.
“We’ll take a disciplined approach to balancing margin improvement with investing into our growth,” Netflix chief financial officer Spencer Neumann told analysts on Thursday. “We see a lot of runway to continue to grow profit and profit margin over the long term.”
Netflix to Stop Reporting Quarterly Subscriber Figures in 2025
The streamer’s shift in reporting metrics was the big news of the day.
The company explained that membership growth was a strong indicator of Netflix’s future potential in its early days, when it had little revenue or profit. But now that it is generating “very substantial profit and free cash flow,” with new revenue streams such as advertising and its add-an-extra-member feature, “each incremental paid membership has a very different business impact.” The company also said the shift reflected how it has evolved its pricing and plans from single to multiple tiers with different price points depending on country.
The company, which began transitioning from a mail-based rental business to a streaming service in 2007, now controls 8.1% of all U.S. TV viewing, up from 6.9% in April of last year, the earnings release showed on Thursday.
Netflix will continue to provide a breakout of revenue by region, as well as the impact of foreign exchange. Future guidance will consist of annual revenue guidance, annual operating margin and forecasts for free cash flow, quarterly revenue, operating income, net income and earnings per share. It said it will also announce major subscriber milestones as it crosses them.
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Netflix added 2.53 million subscribers in the U.S. and Canada for a total of 82.66 million; 2.9 million in the Europe, Middle East and Africa region for a total of 91.73 million; 1.72 million in Latin America for a total of 47.72 million and 2.16 million in the Asia-Pacific region for a total of 47.5 million.
The company recorded revenue of $4.2 billion in the U.S. and Canada, $2.9 billion in the EMEA region, $1.16 billion in Latin America and $1.02 billion in Latin America. Average revenue-per-paid member (ARM) grew 7% to $17.30 in the U.S. and Canada, was flat at $10.92 in the EMEA region, fell 4% to $8.29 in Latin America and fell 8% to $7.35 in the APAC region.
The ad tier saw its membership grow 65% quarter over quarter. The offering, which last reported over 23 million monthly active users in January, accounts for over 40% of Netflix’s sign-ups. In order to help scale the offering, Netflix has said it plans to retire its ad-free basic plan in countries where the ad-supported offering is available, starting with the United Kingdom and Canada in the second quarter
Popular programming during the quarter included “Griselda,” “3 Body Problem,” “Avatar: The Last Airbender,” “Love is Blind Season 6,” “Fool Me Once,” “The Gentleman,” “Physical 100” Season 2, and “Berlin” Season 1.
“With more than two people per household on average, we have an audience of over half a billion people. No entertainment company has ever programmed at this scale and with this ambition before,” the company said. “Today, our share of TV viewing is less than 10% in every country. So we have plenty of room to add value for our members and grow our share of viewing by broadening our slate, including with live events (comedy, sports, competition shows, music).”
When asked about the continued benefit from the password sharing crackdown, Netflix co-CEO Greg Peters said that management expects it will deliver and contribute to the company’s growth for “the next several quarters to come.”
Looking ahead, Netflix is forecasting revenue growth of 13% to 15% for fiscal year 2024 and is raising its operating margin forecast for the year to 25% from 24%. That level of annual growth —when compared to a forecast of 16% for next quarter — hurt the stock in after-market trading, CNBC reported.
For the second quarter, it anticipates revenue growth of 15.9% to $9.49 billion, $2.5 billion in operating income, an operating margin of 26.6%, net income of $2.06 billion and diluted earnings per share of $4.68. Netflix expects paid net additions to be lower in the second quarter compared to the first quarter “due to typical seasonality.”
In order to sustain healthy long-term growth, Netflix said it would focus on improving the variety and quality of its entertainment, with more TV shows and movies, a stronger slate of games and must-watch live programming. It also plans to innovate its product and marketing and plans to continue scaling its ad tier to make it a more meaningful contributor to its earnings in 2025 and beyond.
Netflix is also revising its capital allocation strategy, including upsizing its revolving credit facility from $1 billion to $3 billion. The company said it will continue to prioritize profitable growth by reinvesting in its business, maintaining a healthy balance sheet and ample liquidity and returning excess cash “beyond minimum cash and any used for selective M&A” to shareholders through share repurchases. It said it will also refinance upcoming debt maturities and does not plan to lever up to buy back stock.
During the quarter, Netflix paid down $400 million of senior notes with cash on hand and repurchased 3.6 million shares for $2 billion. It finished the quarter with gross debt of $14 billion and cash and cash equivalents of $7 billion. It maintained full year free cash flow guidance of approximately $6 billion and cash content spend of up to $17 billion.
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