Netflix’s post-Warner Bros. honeymoon is over.
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Wall Street wasn’t pleased with the streaming giant’s first-quarter earnings report, which was also its first since it backed out of its bid for WBD’s streaming and studio assets.
Netflix’s stock dropped by over 9% in after-hours trading. Netflix beat both revenue and earnings estimates last quarter, the company told investors on Thursday afternoon. However, Netflix’s second-quarter guidance came in below Wall Street’s estimates.
Netflix also announced that cofounder and former CEO Reed Hastings will leave the board in June.
“Netflix changed my life in so many ways, and my all‑time favorite memory was January 2016, when we enabled nearly the entire planet to enjoy our service,” Hastings said in a statement. “My real contribution at Netflix wasn’t a single decision; it was a focus on member joy, building a culture that others could inherit and improve, and building a company that could be both beloved by members and wildly successful for generations to come.”
Netflix’s revenue rose 16% to $12.25 billion in the first quarter, just over the consensus estimate of around $12.2 billion, as tracked by S&P Global.
Operating income also rose to $3.96 billion, roughly in line with the $3.9 billion estimate. Earnings per share came in at $1.23, well above S&P Global’s estimate of $0.77, in part because of the $2.8 billion breakup fee that Netflix collected from Paramount Skydance.
Shares had risen by more than 40% from their late-February low, when doubts mounted about the company’s chances of landing Warner Bros.
Wall Street wasn’t a fan of Netflix’s WBD deal, as its shares had lost about a third of their value during its pursuit of the company’s streaming and studios assets.
Boosting prices and ad revenue
Ahead of Netflix’s earnings report, analysts focused on two key catalysts: its recent price hikes and its growing advertising business.
Netflix raised prices by $1 to $2 a month in mid-March. Its ad tier now costs $8.99 a month, compared to $19.99 a month for its ad-free standard plan and $26.99 for its premium plan.
Luke Stillman, an advertising analyst at research firm Madison & Wall, told Business Insider before Netflix’s earnings report that “there’s more runway than most people believe to increase subscription prices.”
If Netflix subscribers balk at the cost of its pricier plans, they can trade down to its ad plan, which costs as much or less than comparable plans from other major streaming services.
Adding more ad-tier subscribers can help Netflix land larger brand deals and higher ad rates, said Mike Proulx, the marketing research director at Forrester.
Netflix on Thursday reiterated its forecast to double ad revenue from $1.5 billion last year to around $3 billion in 2026.
