Netflix share price: where next following Q1 earnings?

The Netflix Inc share price dropped as much as 10% in after-hours trade following the release of its Q1 FY21 earnings report.

The headline figure of these decidedly lacklustre results: 3.98 million paid subscriber additions, taking the company’s total subscriber count to 207.64 million. The company had forecast paid subscriber growth of approximately 6 million for the quarter and Wall Street was forecasting 6.29 million net subscriber adds, according to Bloomberg.

As IG Market Analyst Kyle Rodda added:

‘The market was looking for signs that the end of the stay at home trade has arrived. Netflix's disappointing subscriber estimates suggests the company sees that boom coming to an end - that it is experiencing the mild hangover of so much growth being brought forward by the pandemic.’

Netflix share price ↓

That big miss looks to be the catalyst behind the after-hours sell-off, with the stock trading down 8.25% to $504 per share at the time of writing.

Management attributed this miss to the pull forward in growth brought on by the global pandemic. That also created a content gap that now appears to be rearing its head, with management also flagging delayed production across most of 2020.

That second issue looks mostly resolved: production has ramped back up and the pipeline of high-value, exclusive content across the second half of 2021 has been positioned as a key positive. Some of Netflix's upcoming big name shows include: Sex Education, The Witcher, and You.

Investors are now likely pondering two key questions:

• Will that content line-up be enough to spur growth?
• And, with the pandemic pulling forward significant amounts of growth - what does the company’s mid and long-term growth trajectory look like?

Where Next: In the coming quarter, the streaming giant is now forecasting net subscriber additions of 1.0 million. That estimate would take Netflix’s total subscriber count to 208 million and imply year-on-year growth of just 8%, the lowest in the last 5 quarters.

Despite that subdued outlook, management remains confident in the long-term tailwinds boosting the company. The linear TV experience is in decline, and streaming services look to be their inevitable replacement.

The short-term outlook appears less certain, with management conceding that 'there is some uncertainty from Covid-19.'

Other points to consider

Despite the subscriber miss, the quarter had many positives. Revenue growth accelerated from the last quarter, rising 24% to come in at $7.1 billion.

On the bottom line, operating profits and margins both reached record highs, coming in at $1.96 billion and 27.4%, respectively. Net income for the quarter was $1.7 billion.

Where Next: Looking towards Q2, management guided for the following: Revenues of $7.3 billion, operating profits of $1.86 billion, and operating margins of 25.5%

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