Netflix Earnings Review: It is not Recommended to Buy

1) The growth of the number of users of the company, and the progress of cracking down on shared accounts.

2) The company's ARM performance, the effectiveness of advertising and other multi-monetization.

3) The company's industry competitiveness, including content competitiveness, etc.

Overall revenue fell short of expectations. In 23Q1, the company’s revenue was US$8.162 billion, YoY+3.7%. The growth rate of revenue increased month-on-month, which was slightly lower than Bloomberg’s consensus estimate of US$8.181 billion, mainly due to the lower number of new paying users than expected. In terms of segmented business, streaming media revenue was US$8.13 billion, YoY+3.9%, mainly driven by user growth; while DVD business revenue fell 21% year-on-year, and it is expected to completely shut down this business in 23Q3.

Earnings beat expectations. In terms of profit, the 23Q1 operating profit was US$1.714 billion, a year-on-year decrease of 13.05%, and the operating profit margin was 21%, which was a significant increase from the previous quarter (7%), mainly due to the reduction of content investment and the control of marketing expenses. The net profit was US$1.305 billion, and the net profit rate was 15.99%. Diluted EPS was $2.88, beating Bloomberg consensus estimates.

Performance guidance is relatively conservative. 23Q2 revenue is expected to be US$8.242 billion, YoY+3.4%. Operating margin was 19%.

In 23Q1, the company added 1.751 million new paying users, far below the market expectation of 2.413 million. As of 23Q1, the company's total number of paying users is 233 million, YoY+4.9%. The lower-than-expected increase in new paid users was mainly due to the loss of some users due to crackdown on shared accounts. The company is currently in Latin America, Canada, New Zealand, Portugal, and Spain.

In terms of regions, the main source of new paying users is still the Asia-Pacific region. In 23Q1, the Asia-Pacific region added 1.46 million, YoY+34.31%, mainly due to the output of explosive content and the company’s price reduction strategy in most Asian countries. 644,000 new users were added in the Europe, Middle East and Africa region, and the total number of users continued to grow. The number of new paying users in the United States was 102,000. The number of users in Latin America fell by 450,000, mainly due to the crackdown on shared accounts and weak macroeconomics.

Due to the high penetration rate of users in the United States, Netflix’s current user growth momentum mainly comes from the Asia-Pacific region with a low penetration rate. Therefore, the company should maintain a price reduction strategy in the Asia-Pacific region for a period of time in the future to attract new users.

In addition, due to factors such as the emergence of user bottlenecks, relatively weak macroeconomic conditions, and fierce market competition, the company's user growth relies heavily on the emergence of popular content. In the short term, the company will continue to crack down on shared accounts, which will lead to the loss of users in the short term, but if the content is excellent, in the long run, users will follow popular content and return. Considering that the first and second quarters are the off-season for the company's content output, the company's user growth is still under great pressure.

23Q1 ARM fell by 1% year-on-year, mainly due to the price reduction strategy and the implementation of low-priced advertising packages. Considering that the company's strategic focus is to reduce prices to attract new users, and advertising revenue can not be supported in the short term, it is expected that it will be difficult for ARM to achieve growth in the short term. Currently, Netflix’s advertising program has been launched in the United States, Australia, Brazil, Canada, France, Germany, Italy, Japan, South Korea, Mexico, Spain, and the United Kingdom.

In terms of regions, ARM in the United States is 16.18, YoY+9%. Revenue in Europe, the Middle East and Africa was $10.89, down 6% year-over-year. ARM in Latin America is $8.6, YoY +3%. ARM in the Asia-Pacific region was $8.03, down 13% year-on-year.

The company is currently very optimistic about the promotion of low-priced advertising packages. The management said that the demand for advertising seats is far greater than the supply, and there is no change in the transfer of subscribers from high-end packages to advertising packages. Ads will affect the viewing experience of long videos to a certain extent, so users who have high requirements for viewing quality should not choose them. Advertising packages are more likely to attract new users who are sensitive to prices. In the future, it is still necessary to observe the impact of advertising on the company's performance. contribute.

In the markets of various countries around the world, the penetration rate of streaming media viewing time in total viewing time is still not high. In the long run, with the continuous improvement of global streaming media penetration rate, the company still has large room for growth.

The company's competitive market position is still stable, maintaining a market share of about 7.2% in the United States, which is stable ahead of other competitors such as Hulu, Disney, and HBO. Compared with competitors, the company's huge and high-quality content reserves are an absolute competitive advantage.

In terms of content investment, the company’s content investment expenditure in the first quarter was US$2.8 billion, a year-on-year decline. The scale of content assets was 32.7 billion US dollars, a decrease from the previous month. It is expected that this year's investment budget will be less than the original 17 billion, so more cash flow will be released. Under the premise of ensuring the quality of content, reducing content investment is conducive to resisting the risk of macro fluctuations.