Netflix disappoints ‘big time’ on guidance for subscriber growth

Shares of Netflix Inc (NASDAQ: NFLX) slid more than 10% in after-hours trading on Thursday after the streaming giant reported strong results for Q4 but gave a massively underwhelming guidance for subscriber growth in the current quarter.

What the earnings report tells us

Netflix said it added 8.3 million net new paid subscribers in the recent quarter, in line with the FactSet consensus but slightly below its own estimate of 8.5 million. For Q1, however, it expects 2.5 million net new subscribers only versus a sharply higher 5.8 million that analysts had predicted.

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In a letter to shareholders, executives said the dovish outlook is because there isn’t much happening in “Netflix Originals” in the first quarter.

The production company reported $607 billion in net income that translates to $1.33 per share versus the year-ago figure of $1.19 per share. At $7.71 billion, its sales noted an annualised growth of nearly 17%. According to FactSet, experts had forecast 83 cents of EPS on $7.71 billion in sales.

Netflix is now trading at $455 versus BofA Securities’ price target of $750.

Tuna Amobi’s take on the earnings report

Netflix subscribers grew sharply during the pandemic in 2020, but growth slowed down again last year. It added 18.2 million new subscribers in 2021 versus more than that in just the first half of 2020.

The streaming company is trying to offset the slowdown in subscriber growth with an increase in prices.

It had hiked the cost of monthly subscription for the U.S. and Canada in October 2020 and did so once again last week. Netflix’s basic plan in the region is now priced higher than HBO Max. On CNBC’s “Closing Bell”, CFRA’s Tuna Amobi said:

The report calls into question the ability off Netflix to sustain the type of growth we’ve seen over the last decade. Coming on the heels of this price increase, one has to wonder whether finally we’re beginning to see some demand elasticity that’s making some of the subscribers to pull back.

On the back of the strength in “international”, however, Amobi says the “long-term secular growth story for Netflix remains intact.”