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Netflix's new streaming media users in Q1 were much lower than expected, and Q2 revenue guidance slowed down more than expected, and there was a huge shock after hours

Streaming giant Netflix failed to get the tech giant's earnings season off to a good start, with mixed first-quarter results.

Netflix's first-quarter revenue and new paying subscribers, and second-quarter revenue and earnings guidance were below market expectations, but the decline in first-quarter earnings was slightly softer than expected, saying subscriptions with ads were well received and cash flow for the full year was higher than previously expected.

Netflix also announced that it will expand the crackdown on paid account sharing launched at the beginning of this year to include the United States, the company's largest market, and will soon end the company's 25-year-old business - DVD mail rental service, send the last batch of DVDs in September, and close its related business website DVD.com later this year.

After the earnings report, Netflix, which closed up about 0.3%, plunged rapidly after the market in the U.S. stock, falling by more than 10% to 12%, and then gradually narrowed the decline and turned up, once rising more than 1%, and then turned down again.

Netflix's new streaming media users in Q1 were much lower than expected, and Q2 revenue guidance slowed down more than expected, and there was a huge shock after hours

First-quarter revenue was lower than expected, EPS profit slightly higher than expected, down 18% year-on-year, and paid users increased by 27% less than expected

After the US stock market on Tuesday, April 18, Eastern time, Netflix announced:

In the first quarter of this year, operating income was $8.162 billion, up 3.7% year-over-year, and analysts expected a year-over-year increase of about 4% to $8.18 billion. First-quarter diluted earnings per share (EPS) were $2.88, down 18.4% year-over-year and still above analysts' expectations of $2.86. The net increase in paid subscribers in the first quarter was 1.75 million, an increase of about 27.4% from analysts' expectations of 2.41 million. The total number of paid streaming subscribers in the first quarter was 232.5 million, also below analysts' expectations of 233 million. The average number of paying subscribers increased 4% year-over-year in the first quarter, and the average revenue per paying user (ARM) decreased 1% year-over-year in the quarter.

Netflix's new streaming media users in Q1 were much lower than expected, and Q2 revenue guidance slowed down more than expected, and there was a huge shock after hours

Second-quarter revenue and EPS earnings guidance are lower than expected, and new streaming media users are expected to be "roughly the same" as in the first quarter

When it announced its fourth-quarter earnings report in January, Netflix said that it would no longer provide guidance for user growth in the coming quarter, starting with this year's earnings report, because after the introduction of ad-based subscription packages in November last year and measures to crack down on paid account sharing earlier this year, "revenue" has increasingly become a key performance indicator for the company's healthy growth. Netflix calls revenue the company's "primary revenue measure."

The guidance released on Tuesday showed that Netflix's revenue and earnings guidance for the quarter were below market expectations.

Netflix expects second-quarter revenue of $8.242 billion, up 3.4% year-over-year, further moderating from 3.7% in the first quarter, while analysts expect a year-over-year increase of more than 6% to $8.47 billion. Netflix expects second-quarter EPS to fall more than 11% year-over-year to $2.84, and analysts expect a year-over-year decline of about 3.8% to $3.08.

Netflix said the net increase in paid subscribers in the second quarter would be "roughly comparable" to the first quarter.

Latin American streaming media users fell by 450,000 net in the first quarter, reflecting the impact of cracking down on account sharing, Asia-Pacific users increased by 85% more than expected

By region, Netflix had the worst growth in streaming users in Latin America, the only region in the world where Netflix had a net decrease in paying subscribers, reflecting the impact of the local campaign to crack down on password sharing of streaming paid accounts. Streaming growth in the Asia-Pacific region soared more than expected in the first quarter, partly reflecting the impact of the hit Korean drama "Dark Glory."

In the first quarter, Latin America saw a net decrease of 450,000 paying users, down 29% year-on-year, and the market expected an increase of 524,638 yuan, but revenue in Latin America increased 7% year-on-year and ARM increased by 3%. In the first quarter, the United States and Canada saw a net increase of 100,000 paying subscribers, down 640,000 from a year ago, and the market expected an increase of 257,994 million. EMEA saw a net increase of 640,000, down 0.3 million year-on-year, and the market expected an increase of 830,707 yuan. In the first quarter, the Asia-Pacific region saw a net increase of 146,000 paying users, a year-on-year increase of 34%, and an increase of 85% over market expectations of 986,597 million.

Satisfied with the results of the first quarter of the crackdown on account sharing in the four countries The scope was extended to the United States in the second quarter

Netflix announced that it plans to expand the scope of the crackdown on paid account sharing in the second quarter, and more regions, including the United States, will also implement this action that quarter.

Netflix said that despite the recent loss of users in Latin America, it has so far been "pleased with the results." Netflix could have rolled out a broad campaign for paid account sharing in the first quarter of this year, but the company found an opportunity to improve the member experience, combining lessons learned in each region rollout, which would lead to better results.

Netflix previously said that more than 100 million people use other people's paid accounts to watch Netflix content. On Tuesday, Netflix further noted that widespread account sharing undermines our ability to invest in and improve related services for paid members, as well as build our business. Netflix presented the results of its first quarter efforts to restrict account sharing in four countries, saying:

"We are pleased with the results of the Q1 rollout in Canada, New Zealand, Spain and Portugal, which strengthens our confidence that we are taking the right approach."

Netflix's new streaming media users in Q1 were much lower than expected, and Q2 revenue guidance slowed down more than expected, and there was a huge shock after hours

Content cash expense lower-than-expected Free cash flow for the year was revised up nearly 17% to $3.5 billion

In terms of cash flow, Netflix disclosed that net cash generated by operating activities in the first quarter was $2.2 billion, about 2.4 times the $9.4 billion a year ago. Free cash flow for the first quarter totaled $2.1 billion, about 2.6 times the $8.6 billion a year ago.

Netflix expects free cash flow to reach at least $3.5 billion for the full year, up from at least $3 billion previously expected and equivalent to a 16.7% upward revision from previous expectations, assuming no significant foreign exchange volatility.

Netflix believes that the increase in cash flow reflects that cash expenses on content are lower than the company's initial expectations, advanced spending on content is down year-over-year, and the content cash expense to content amortization ratio is nearly doubled this year. Next year, Netflix still expects content cash outlays to be in the range of about $1.7 billion, which is in line with the company's previous expectations for the period 2022 to 2024.

The user engagement of the advertising package exceeded the company's expectations

In addition to paid account sharing, Netflix also disclosed the progress of another important initiative - paid content with ads.

Jefferies' report earlier this month estimated that ad packages and crackdown on account sharing will propel Netflix back to accelerate growth and achieve double-digit revenue growth by the end of this year and next. However, there may be "a lot of noise" in the first quarter before accelerating growth.

Wells Fargo analyst Steve Cahall remains bullish on the prospect of cracking down on account password sharing, writing in a report last week that Netflix will focus less on quarterly results in the first quarter and more on the upcoming crackdown on paid account sharing in the United States.

On Tuesday, Netflix said that the advertising content is still in its early stages, but whether it is the member experience, value to advertisers, or incremental contributions to the company's business, the company is pleased with progress in all key dimensions. User engagement with the ad content exceeded the company's initial expectations, which were consistent with minimal user changes between the Standard and Premium paid plans.

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