Shares of the video streaming giant are trading sharply lower after hours on Thursday amid signs that the company’s Covid-19-fueled growth is coming to an end.
In the June quarter of Thursday, Netflix added 10.1 million new net subscribers, above the company’s forecast of 7.5 million, but fell short of Wall Street estimates that they had reached 12 million or more. Netflix forecasts just 2.5 million net additions in the September quarter, well below analyst expectations.
In the March quarter, Netflix (ticker: NFLX) added 15.77 million new net subscribers, exceeding the guidance of seven million.
For the second quarter, Netflix posted revenue of $ 6.15 billion, 24.9% more than a year ago and slightly ahead of Wall Street analyst consensus of $ 6.08 billion. Earnings were $ 1.59 a share, below the consensus of $ 1.81 a share, largely due to a couple of non-operating items.
“In the first and second quarters, we saw significant advancement in our underlying adoption that led to tremendous growth in the first half of this year (26 million net additions paid vs. 12 million a year earlier),” the company said in a letter to shareholders. “As a result, we expect lower growth for the second half of 2020 compared to the previous year. As we navigate these turbulent circumstances, we focus on our members as we continue to improve the quality of our service and bring new movies and shows to people’s screens. ”
Netflix generated $ 1.04 billion in net cash in the quarter, with $ 899 million in free cash flow, in part the result of less content development activity due to the Covid-19 pandemic. Adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) was $ 1.49 billion. (The company had been regularly operating in the red for net cash, free cash flow, and adjusted Ebitda before the pandemic.) Excluding currencies, the average revenue per user increased 5%
The company said lower-than-expected earnings per share reflect an unrealized loss in cash of $ 119 million related to the foreign currency measurement of euro-denominated debt and a cashless allocation of $ 220 million for assets. for deferred taxes related to a change in California law on R&D tax credits
For the September quarter, Netflix projects revenues of $ 6.3 billion, 20.6% more than a year ago, with earnings of $ 2.09 per share; that’s in line with the street at $ 6.39 billion and $ 2 a share.
Meanwhile, Netflix also announced that Ted Sarandos, who is still the chief content officer, would become the co-CEO alongside Reed Hastings. The company also appointed Greg Peters, who remains product manager, for the additional position of chief operating officer.
Reed Hastings said in a call with analysts that the changes in administration announced today do not mean that he is leaving behind his leadership role. Hastings said he plans to remain in his current position for the rest of the decade.
Netflix said it is slowly resuming production in many parts of the world. It is further in Asia. In Europe, the company said, it has returned to production in many places, including Germany, France, Spain, Poland, Italy and the United Kingdom.
Progress in the United States has been slower. “While we recently resumed production of two films in California and two stop-motion animation projects in Oregon and we expect some of our productions in the US to begin this quarter, current infection trends create more uncertainty for our productions in the US, “Netflix said. The company added that “parts of the world like India and some of Latin America are also more challenging,” with plans to restart later in the year in those regions.
Netflix said that 2020 plans to release original shows and movies remain largely intact. “By 2021, under our current plan, we expect leisurely productions to lead to a more weighted content list in the second half in terms of our big titles, although we anticipate that the total number of originals for the full year will continue to be higher than 2020. “The company said.
Netflix said it expects year-round cash flow in 2020 to be at least a break-even point, compared to a previous forecast of a loss of around $ 1 billion. By 2021, the company sees negative cash flow again, but below the $ 3.3 billion level reported in 2019.
The company also said that given its current cash balance, an unused credit line of $ 750 million and the improvement in free cash flow, it does not expect to enter the debt markets for the rest of 2020 “and we believe that our need external financing is decreasing. “
In after-hours trading, Netflix shares fell 9.4% to $ 478.00.
Write to Eric J. Savitz at [email protected]
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