Netflix reports mixed earnings as password crackdown widens

April 18 (Reuters) – Netflix Inc ( NFLX.O ) beat Wall Street revenue estimates for the first quarter but delivered a lighter-than-expected forecast on Tuesday, underscoring the challenges the mature streaming service faces in its pursuit of growth.

The company said it delayed some financial benefits in the second quarter after tweaking a program to prevent unauthorized password sharing, but said it was pleased with the results so far.

As the streaming video pioneer faces signs of market saturation, it is looking for new ways to make money, such as password suppression and a new ad-supported service.

Revenue and earnings for the first quarter came roughly in line with average analyst estimates for Refinitiv. Earnings per share reached $2.88 on revenue of $8.162 billion.

“We’re growing and we’re profitable,” the company’s co-CEO Ted Sarandos said in the company’s post-earnings video interview. “We have a clear path to accelerate growth in both revenue and profitability, and we’re executing on it.”

Shares of Netflix fell as much as 11% in after-hours trading following the report, but recovered to gain 1.4%.

Netflix is ​​a bellwether in the streaming industry, where growth has slowed as competition has intensified.

From January to March, Netflix added 1.75 million streaming subscribers, missing analyst estimates of 2.06 million additions.

Paolo Pescatore, analyst at PP Foresight, described first-quarter results as mixed.

“Netflix is ​​a mature business, which reinforces less confidence in subscriber growth. However, this metric still moves the needle for key stakeholders,” he said.

The company began rolling out its solution for password-sharing in 12 countries in February — offering a “fee-sharing” option but delaying expansion.

“We believe this will have a positive impact on our members and our business,” the company said. Netflix also said it is “on track to meet our full-year 2023 financial objectives.”

Netflix said the ban on password sharing will begin in the US in the current quarter.

For April through June, the company forecast $8.242 billion in revenue and $2.86 in diluted EPS. Wall Street had forecast revenue of $8.476 billion and diluted EPS of $3.05.

Netflix is ​​also moving into live streaming. The agency angered fans of the dating show “Love Is Blind” on Sunday when a reunion special that was supposed to air live was not available. Co-CEO Greg Peters said Tuesday that the crash was due to a “bug” that had been fixed.

A year ago, Netflix lost 200,000 subscribers — its first subscriber decline in more than a decade, reeling its stock and resetting Wall Street’s expectations for the sector.

Netflix will add nearly 9 million subscribers in 2022, half of the 18 million it gained the year before, with growth coming from Asia, research firm MoffettNathanson notes. Gains in Asia and Latin America have hurt average revenue per user, prompting Netflix to make changes to its business model, the company said.

The company launched a lower-cost version of its service in the fourth quarter with promotions in 12 countries.

UBS media analyst John Hodulik wrote that the password-sharing crackdown could fuel Netflix’s nascent ad business because it drives these “shareholders” to a lower-cost version of the service.

Sarandos said Netflix hoped Hollywood studios could reach a “fair and equitable” deal with writers to avoid a strike, but he also noted the access to programming around the world the company could offer if U.S.-based production stalled.

Reporting by Dan Chmielewski and Lisa Rich in Los Angeles Editing by Peter Henderson and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.