April 18 (Reuters) – Netflix Inc ( NFLX.O ) beat Wall Street profit estimates for the first quarter but offered a lighter-than-expected forecast on Tuesday, highlighting the challenges facing the mature streaming service in its pursuit of growth.
The company said it postponed a broader rollout of a plan to crack down on unsanctioned password sharing in the second quarter to make improvements, which delayed some financial benefits, but said it was pleased with the results so far.
As the streaming video pioneer faces signs of market saturation, it is looking for new ways to make money, such as password cracking and a new ad-supported service.
Revenue and earnings for the first quarter were roughly in line with average analyst estimates from Refinitiv. Earnings per share came in at $2.88 on revenue of $8.162 billion.
“We’re growing and we’re profitable,” Co-Chief Executive Ted Sarandos said in the company’s post-earnings video interview. “We have a clear path to accelerate growth in both revenue and profit, and we’re doing it.”
Netflix shares fell as much as 11% in after-hours trade following the report but recovered to gain 1.4%.
Netflix serves as a bellwether for the streaming industry, where growth has slowed as competition has intensified.
From January to March, Netflix added 1.75 million streaming subscribers, missing analyst estimates of 2.06 million additions.
Analyst Paolo Pescatore of PP Foresight described the first quarter results as mixed.
“Netflix is a mature business that relies less on subscriber growth. However, this metric still moves the needle for key stakeholders,” he said.
The company began rolling out its password-sharing solution – offering a “paid sharing” option – in 12 countries in February but has delayed expansion.
“We believe this will result in a better outcome for our members and our business,” the company said. Netflix also said it is “on track to meet our full-year 2023 financial goals.”
The clampdown on password sharing will begin in the United States in the current quarter, Netflix said.
For April through June, the company forecasts $8.242 billion in revenue and $2.86 in diluted EPS. Wall Street projected $8.476 billion for revenue and $3.05 for diluted EPS.
Netflix is also moving into live streaming. The company upset fans of former show “Love is Blind” on Sunday when a reunion special that was supposed to air live was unavailable. The accident was due to a “bug” that has since been fixed, Co-CEO Greg Peters said Tuesday.
A year ago, Netflix lost 200,000 subscribers – its first subscriber decline in more than a decade, sending its stock reeling and resetting Wall Street’s expectations for the sector.
Netflix will add nearly 9 million subscribers by 2022, half of the 18 million it gained last year, with most of that growth coming from Asia, research firm MoffettNathanson said. Its gains in Asia and Latin America affected average revenue per user, prompting Netflix to make changes to its business model, the company said.
The company introduced a lower-priced version of its service with ads in 12 countries in the fourth quarter.
UBS media analyst John Hodulik wrote that the crackdown on password sharing could fuel Netflix’s new advertising business, as it drives these “sharers” to a lower-priced version of the service.
Sarandos said Netflix hopes Hollywood studios can reach a “fair and equitable” deal with writers to avoid a strike, but he also noted the company has access to programming from around the world that it can offer if US-based production is disrupted.
Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles Editing by Peter Henderson and Matthew Lewis
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