Netflix shares fell by as much as 7% in early trading on Wednesday after reporting a lower-than-expected number of paid memberships for 1Q 2021. The company reported 208 million paid memberships versus 210 million originally expected. The streaming giant attributed the membership growth slowdown to a big COVD-19 pull forward last year. A lighter content slate also had a hand in the slowdown.
However, Netflix (NFLX) was still able to post a 24% year-over-year increase in revenue that totaled $7.16 billion, in line with the company’s guidance. Operating income more than doubled year-over-year to $1.96 billion. Average revenue per membership benefited from price hikes and rose 6%. Paid net additions in the quarter totaled 4 million, well below estimated 6 million.
Earnings per share in the quarter more than doubled to $3.75 against $1.57 reported in the year-ago period. Netflix ended the first quarter with a much bigger membership and revenue base than it had last year in the same quarter. Net cash from operating operations nearly tripled to $777 million compared to $260 million a year ago. The company is on track for full-year free cash flow to break-even.
Netflix is projecting a solid second half of the year. The company is betting on the return of new seasons for some of its biggest shows and films to fuel growth.
“We are optimistic about the future and believe we are still in the early days of the adoption of internet entertainment, which should provide us with many years of growth ahead,” Netflix stated in a press release.
Netflix shares are up 1.7% year to date after a 67% pop in 2020. (See Netflix stock analysis on TipRanks).
According to Stifel Nicolaus’s analyst Scott W.Devitt, Netflix is well positioned to add over 100 million subscribers over the next five years and reach over 400 million paid subscribers by 2030.
“Steady scaling of content investments against a growing subscriber base should fuel continued operating margin progress despite continued content investments. International penetration continues to increase with greater adoption in key markets, including Europe, Latin America, and APAC, with significant runway remaining,” Devitt wrote in a research note
Devitt has since confirmed his upgrade of Netflix to a Buy, with a $560 price target, implying 10% upside potential to current levels.
Consensus among analysts is a Moderate Buy based on 21 Buys, 4 Holds and 4 Sells. The average analyst price target of $598.52 implies approximately 17% upside potential to current levels.
NFLX scores 8 out of 10 on TipRanks’ Smart Score rating system, which indicates that the stock is likely to outperform the overall market.
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