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Netflix numbers are out!The stock is off 4.8% as investors react to what they’re seeing.
The numbers for this quarter were in line, but the guidance was weaker than expected.
The release is embedded below, but here are the key stats:
- It added 3.6 million subscribers, which is just weaker than what the street expected. The street wanted 3.7 million.
- EPS: $1.11 beats expectations of $1.08.
- Revenue was $719 million, which beat estimates of $703.60 million.
- Midpoint EPS guiance for the next quarter is $1.04, which is below what Morgan Stanley’s Scott Devitt was forecasting at $1.12.
Here are the highlights from the investor letter, we’re reading it as we go:
- “Looking forward, our prior period comps for net adds are going to get tougher, and while we expect our net adds the rest of this year to continue to exceed those of the prior year, it won’t be at a pace of nearly 2X like in Q1.”
- “Going forward in Q2 and beyond, we expect DVD shipments to decline slightly Y/Y, spending on streaming content to increase substantially, and spending on marketing to decline from Q1, bringing our domestic operating margin back to our desired goal of around 14%.”
- “While the size of [our streaming] deals and their impact on our P&L is often speculated about in the press, spending typically takes place over multiple years and the amortized cost of these deals is taken into consideration in our 14% target operating margin model.”
- It says it will be looking for more original programming like “House of Cards”: “Ideally, we’ll licence two or three similar, but smaller, deals so we can gain confidence that whatever results we achieve are repeatable.”
- Netflix is not killing cable: “Our subscribers overwhelmingly enjoy both their Netflix and the variety of sports, current season TV shows, news and entertainment available through MVPDs.”
- Netflix is expanding internationally into a third market beyond the U.S. and Canada and it will lose $50-$70 million on those international plans in the second half of the year.
- Netflix ripped into ISP’s implementing bandwidth caps in Canada. It says if ISPs were fair, they’d implement the caps during peak hours like Sunday nights instead of setting absolute limits.
- Netflix bought stock: “The objective of our buyback program is simply to return money to our shareholders, similar to a dividend; consequently, we are neither price sensitive nor market timers. With this objective, we used $108.6 million in Q1 to repurchase 502,000 shares at an average cost basis of $216.48”
Here’s Netflix’s letter to investors: