TV streaming leader Netflix saw around $20 billion wiped off its market value in after-hours trading after wildly missing new subscriber growth expectations.

Netflix added four million new customers in the first quarter, well short of the six million expected. The company also guided for just one million net adds in the second quarter and warned of ongoing uncertainty due to the pandemic.

Netflix stock, which had soared 66% through 2020 as millions of people were shut in at home, fell around 8% to $549.47 on the news, stripping almost $20 billion off its pre-announcement $243 billion market value.

Netflix has long been judged by growth in streaming subscribers, with investors happily accepting huge cash consumption and volatile profits in its huge global expansion.

So when earnings were announced overnight Tuesday showing the company’s worst first quarter for net additions since 2013, and a forecast for the worst quarter in Netflix’s history by that standard, the stock was sent tumbling.

OVERESTIMATED GROWTH

‘The company, and the Street, seem to have overestimated the continuity of demand from a record breaking 2020,’ said Neil Wilson of Market.com. The ‘Street’ refers to the Wall Street analyst community and consensus forecasts.

Yet there was plenty to sate investors after this apparent post-pandemic growth hangover, particularly those happy to support the company’s emerging profitability maturity.

The streaming video pioneer reported adjusted earnings of $3.75 per share in the first quarter, far exceeding analysts’ expectations of $2.97. Revenue jumped 24% to $7.16 billion in the quarter ended on March 31, beating Wall Street consensus estimates of $7.13 billion.

‘Earnings were up by $1 billion from last year to $1.71 billion because of production delays lowering costs, but also the significant revenue jump,’ said Wilson. That was an all-time quarterly record, and importantly, suggested recent price increases on the platform haven’t put too many people off.

‘Still, its position looks strong even if sequential growth rate is slowing, which was always to be expected anyways,’ said the market analyst.

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Issue Date: 21 Apr 2021