The streaming giant's revenue forecasts came in below Wall Street expectations, while co-founder Reed Hastings announced he would leave the board
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Netflix $NFLX stock fell more than 10% in pre-market trading Friday, following a below-consensus second-quarter outlook and word that co-founder and chairman Reed Hastings plans to exit the board. The company's first-quarter earnings report Thursday brought both announcements.
Second-quarter revenue was guided to $12.57 billion, short of the $12.64 billion consensus figure, per data from Bloomberg. On the earnings side, Netflix put its Q2 guidance at 78 cents per share, a figure that trailed the 84 cents analysts had penciled in. At 13%, the guided revenue growth rate for Q2 would mark a one-year low, Reuters noted.
Netflix attributed the Q2 margin pressure to content spending weighted toward the first half of the year. Content amortization is set to peak on a year-over-year basis in Q2, the company said, with that growth rate expected to ease back to the mid-to-high single digits once the second half begins. The company maintained its full-year revenue guidance of $50.7 billion to $51.7 billion and its operating margin target of 31.5%.
First-quarter results were strong. In Q1, Netflix took in $12.25 billion in revenue, a 16% increase from a year earlier that cleared the $12.18 billion analyst consensus, according to CNBC. Bottom-line profits came to $5.28 billion, or $1.23 a share — nearly twice the $2.89 billion, or 66 cents a share, the company posted in last year's first quarter. Contributing to that result was the $2.8 billion breakup fee paid to Netflix when its proposed acquisition of Warner Bros. Discovery's streaming and studio assets collapsed in February.
Hastings will step down from the board once his current term wraps up at the annual meeting this June. After that, he says he's looking forward to putting more of his time into charitable work and personal projects. In a letter addressed to shareholders, Hastings wrote, "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." Hastings is one of Netflix's original co-founders and ran the company for many years before handing off the CEO title to Ted Sarandos and Greg Peters back in January 2023.
On an investor call, Sarandos said Hastings' departure was unrelated to the failed Warner Bros. bid. Sarandos rejected that premise, saying in the direct quote attributed to him that Hastings had driven the Warner Bros. effort internally: "Reed was a big champion for that deal. He championed it with the board. The board unanimously supported the deal."
Advertising revenue is expected to hit $3 billion for the full year, which would represent a doubling relative to 2025, the company reaffirmed. The company's ad-supported plan accounted for more than 60% of Q1 sign-ups in markets where ads are available. A March price increase touched every U.S. plan, pushing the ad-free standard tier up by $2 to $19.99 a month. The company said those price changes have performed in line with historical patterns.
Free cash flow for the quarter reached $5.09 billion, up from $2.66 billion in the year-ago period, boosted by the Warner Bros. termination fee. Netflix now projects full-year free cash flow of about $12.5 billion, raised from a prior estimate of $11 billion.
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