18 Apr

What Netflix Expects in the Second Quarter

WRITTEN BY Sneha Nahata

First-quarter results

Netflix’s (NFLX) global streaming paid membership base grew 25.2% YoY (year-over-year) in the first quarter. Meanwhile, its total revenue rose ~22% in the quarter, or 28% YoY excluding currency headwinds. However, its ARPU (average revenue per user) fell 2% due to currency exchange rates. Netflix’s operating margin exceeded its expectation and reached 10.2%, as some content spending was shifted to the later half of the year.

What Netflix Expects in the Second Quarter

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Q2 guidance

Netflix forecasts accelerated streaming ARPU and revenue growth in the second quarter, with its ARPU growing 2% and its revenue increasing 26% (or 7% and 32%, respectively, excluding currency headwinds). The company expects its operating margin to strengthen in the second half of the year and forecasts an operating margin of 13% in fiscal 2019.

However, Netflix expects its paid net additions to drop 8% YoY to 5 million in the second quarter, mainly due to weak US growth. Netflix expects US and international subscriber additions of 0.3 million and 4.7 million, respectively, in the quarter.

Several big players’ entry into the streaming space is expected to hurt Netflix’s subscriber base. Walt Disney (DIS), Apple, and AT&T’s (T) WarnerMedia are set to launch services this year, while Comcast’s (CMCSA) NBCUniversal is set to launch services in 2020. According to Research and Markets, paid video-on-demand subscriptions are expected to reach ~777 million globally by 2023.

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