Netflix co-founder and then-CEO Reed Hastings met with executives from other subscription streaming services in Sydney on February 25, 2022.
Walter Peters | Fairfax Media | Getty Images
Netflix Shares fell 9% in after-hours trading Thursday after the streaming giant released its first-quarter earnings report and announced significant governance changes.
The company beat Wall Street expectations, with first-quarter sales of $12.25 billion, ahead of analysts’ estimates of $12.18 billion compiled by LSEG and 16% higher than the $10.54 billion reported in the same period last year.
Thursday was the company’s first earnings report since it scrapped its planned acquisition plan. Warner Brothers Discovery Streaming and Movie Assets for February.
Netflix reported net income of $5.28 billion, or $1.23 per share, nearly double the year-ago period’s net income of $2.89 billion, or 66 cents per share. The company cited higher-than-expected operating income and a $2.8 billion termination fee it received after the deal with WBD fell through.
Reported earnings per share did not match analyst estimates of 76 cents due to the impact of surrender charges.
Still, Netflix maintained its previous full-year guidance for revenue between $50.7 billion and $51.7 billion.
The company said it expected second-quarter sales to rise 13%, reiterating earlier warnings that content spending would be weighted toward the first half of the year due to the timing of title launches. Netflix added that it expects content amortization growth in 2026 to be at its highest year-over-year in the second quarter, then decline in the second half of the year.
Although the proposed deal involving WBD’s assets has been dropped, the deal would still impact Netflix’s financials this year. Netflix Chief Financial Officer Spencer Newman said Thursday that some of the originally planned costs related to the acquisition will not be “fully realized,” but that some costs that were scheduled to be rolled over to 2027 will be rolled over to 2026. He added that the company is “still on track for total M&A-related expenses this year, which are the total amount we expected.”
On Thursday, Netflix also announced that Netflix co-founder and current chairman Reed Hastings will retire from the company’s board of directors in June at the end of his term.
Hastings will step down as CEO in 2023, and Greg Peters, who served as chief operating officer, will take on the co-CEO role alongside Ted Sarandos.
“Netflix has changed my life in so many ways, and my fondest memory is January 2016, when nearly the entire planet became able to enjoy our service,” Hastings said in a letter to the company’s shareholders on Thursday. Hastings will now focus on philanthropy and other endeavors, the letter said.
On Thursday, one analyst questioned whether Hastings’ departure was related to the proposed contract with WBD.
Mr. Sarandos voted against it, adding that Mr. Hastings was “a big champion of that deal. He defended the deal with the board. The board was unanimous.”
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Netflix reiterated Thursday that it expects ad revenue to double from a year ago to $3 billion in 2026, as new revenue lines show growth.
The company first introduced a lower, ad-supported price tier in 2022, and has since emphasized a path to revenue growth, even as it raised subscription prices to attract more subscribers and cracked down on password sharing.
Netflix announced in January that it had reached 325 million paid subscribers worldwide. Netflix no longer provides quarterly updates on membership numbers.
The company announced Thursday that “slightly higher than planned subscription revenue” contributed to an 18% increase in operating profit in the first quarter.
And last month, Netflix announced that it was once again raising prices on all its streaming plans.
“Our recent pricing changes have been successful and reflect the high value we provide to our members,” the company said in a shareholder letter Thursday.
Peters, co-chief executive officer, said on a call Thursday that price increases had always been part of the company’s plans for this year. Peters said the rollout of the price change is still a work in progress, but so far everything is consistent with what Netflix has seen as a result of the price change, including members dropping their memberships or switching to cheaper rate plans.
“We aim to provide more and more value to our members…We invest the revenue we successfully earn. And when we add more value, we may ask our members to donate more so that we can invest it in providing more entertainment value,” Peters said.
The company announced Thursday that its “key internal quality engagement metrics” hit new records in the first quarter due to its expansion into video podcasts and airing of the World Baseball Classic.
Live sports is a big part of Netflix’s platform, and co-CEO Sarandos said Thursday that the company is currently in talks with the NFL to “expand our relationship.” Netflix doesn’t have a typical NFL package, but for the past few years it has been streaming NFL games on Christmas Day.
Correction: This article has been updated after LSEG revised its valuation of Netflix’s earnings per share. Due to the impact of WBD’s termination fees, reported EPS is not comparable to analyst expectations.
