Netflix misses subscriber growth targets, but expects a big Q2

Reed HastingsFlickrNetflix CEO Reed Hastings

Netflix missed its subscriber growth targets during the first quarter, blaming the shortfall on slight delays in the release dates for some of its most popular shows.

The video streaming service insisted that the lower-than-expected Q1 subscriber growth in both domestic and international markets did not signal any change to its long-term growth expectations.

In fact, Netflix turned in a rosier forecast for Q2 than Wall Street was expecting, both domestically and internationally. And the company said it expects to cross the 100 million member mark for its service during the coming weekend.

Netflix stock was down roughly 4% in the immediate aftermath of the earnings announcement, but rebounded and was up 1.4% in after hours trading on Monday.

Here are the key numbers:

  • Q1 EPS (GAAP): $US0.40, versus Wall Street forecasts of $US0.37.
  • Q1 revenue: $US2.64 billion, up 35% year-over-year, versus Wall Street forecasts of $US2.65 billion.
  • Q1 US subscriber growth (net additions): 1.42 million, versus Wall Street forecasts 1.59 million, and Netflix guidance of 1.5 million.
  • Q1 international subscriber growth (net additions): 3.53 million, versus Wall Street forecasts 3.9 million, and Netflix guidance of 3.7 million.
  • Q2 subscriber growth guidance (domestic): 600,000, versus Wall Street forecasts of 420,500.
  • Q2 subscriber growth guidance (international): 2.6 million, versus Wall Street forecasts 2.1 million.

In a letter to shareholders, Netflix said that in regards to its Q1 performance, though it missed relative to guidance, “There were no substantial variations from our January guidance forecast.” Netflix said that due to certain content moves, particularly moving “House of Cards” from Q1 to Q2, some net additions to its subscriber count also shifted from Q1 to Q2. The increased forecast for Q2 supports this theory.

“We have come to see these quarterly variances as mostly noise in the long-term growth trend and adoption of internet TV,” Netflix wrote.

In the letter, Netflix addressed competitor Amazon’s move into NFL football streaming. “That is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows,” Netflix said.

The company reiterated that it doesn’t see the emergence of new streaming TV packages as a threat, again stressing that the “live” business model is different from its own. “We don’t think it will have much of an impact on us as Netflix is largely complementary to pay TV packages,” Netflix wrote. “Our focus also is on on-demand, commercial free viewing rather than live, ad-supported programming.”

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