The company managed to surpass both its forecasts and market expectations. The success in the first three months of the year is primarily due to a significant increase in the number of new subscribers, which rose by 9.33 million in 1Q24 to 269.6 million.
The company recorded revenues of $9.37 billion in the first quarter, marking a nearly 15% year-over-year growth, and also exceeded market expectations by +1.13%. Revenue growth was driven not only by an expanding customer base but also by an increase in Average Revenue Per User (ARPU). In 1Q24, this figure rose by 1% year-over-year to $11.82, exceeding the expected $11.78. Adjusted for currency market changes, the ARPU growth would have been 4%, with the distinction between these two figures arising from the depreciation of the Argentine peso against the dollar.
The operating profit also looks impressive, increasing to $2.63 billion (+51% year-over-year and +8.34% relative to market expectations), allowing the company to achieve a 28% operating margin (+7 percentage points year-over-year). Such remarkable growth stemmed from a higher-than-expected increase in subscribers, as well as the appropriate timing of production costs.
Geographically, Netflix saw revenue growth in the Americas (+7% year-over-year). In EMEA (Europe, the Middle East, and Africa), revenues remained flat year-over-year. The situation is most interesting in South America, where revenues fell by -4% year-over-year, but adjusted for currency fluctuations, they increased by 16% year-over-year.
At the earnings per share level, the company reported $5.28 (+80.2% year-over-year), exceeding the market consensus by 16.04%.
In February and March, streaming began to recover, reaching 38.5% of the entire US television market, with Netflix responsible for 8.1% of the total market. The management believes that the company’s still low share of the television market provides Netflix with significant potential for further growth, particularly through the development of sports streaming (including events such as Jake Paul’s fight with Mike Tyson and WWE).
Netflix has also raised its revenue growth forecast for 2024. The company expects a growth of 13-15%. The forecasted operating margin has also been raised to 25% (from 24% previously).
The company announced that from 1Q25 onwards, it will no longer publish data regarding subscriber changes. The management explained that it considers its financial data as more important indicators of the company’s health.
Despite strong results, exceeding expectations, and raising forecasts for upcoming periods, Netflix shares follow a similar trajectory during post-closing trading as other companies releasing results during the current earnings season, recording a drop of about 3%.
Author: Tymoteusz Turski, Analyst at XTB
