Netflix stock fell Wednesday after the internet television network missed Wall Street's target for new subscribers in the first quarter and offered a weak outlook.
The Los Gatos, Calif.-based company late Tuesday said it added 1.75 million streaming video subscribers in the March quarter vs. forecasts for 2.2 million. It ended the first quarter with 232.5 million total subscribers worldwide.
Most of Netflix's subscriber growth was in the Asia Pacific region, where it added 1.46 million net new subscribers. In the U.S. and Canada, Netflix added just 100,000 subscribers. Meanwhile, in Europe, the Middle East and Africa, Netflix gained 640,000 subscribers.
However, Netflix lost 450,000 subscribers in Latin America in the first quarter.
Netflix Misses With Sales, Earnings Outlook
Netflix earned $2.88 a share on sales of $8.16 billion in the March quarter. Analysts polled by FactSet had expected Netflix to earn $2.86 a share on sales of $8.18 billion. On a year-over-year basis, Netflix earnings fell 18% while sales climbed 4%.
For the current quarter, Netflix predicted earnings of $2.84 a share on sales of $8.24 billion. But Wall Street had been projecting earnings of $3.07 a share on sales of $8.47 billion for the second quarter. In the year-earlier period, Netflix earned $3.20 a share on sales of $7.97 billion.
On the stock market today, Netflix stock dropped 3.2% to close at 323.12. During the regular session Tuesday, Netflix stock rose 0.3% to 333.70.
Popular shows for Netflix in the first quarter included new series "The Night Agent," "That '90s Show" and "The Glory." The quarter also brought new seasons of "Outer Banks" and "Ginny & Georgia" as well as movie sequel "Murder Mystery 2."
In other news, Netflix announced Tuesday that it is ending its U.S.-only, DVD-by-mail rental service after 25 years of operation. It will ship out its final discs to subscribers on Sept. 29.
Analysts Crow About Free Cash Flow
Netflix bulls pointed to the company's improving free cash flow. The company raised its guidance for 2023 free cash flow to at least $3.5 billion, vs. its prior outlook for at least $3 billion. In 2022, it generated $1.6 billion in free cash flow.
"Netflix's Q1 results underscore its ability to generate significantly more free cash flow than its guidance suggests," Wedbush Securities analysts Alicia Reese and Michael Pachter said in a note to clients.
They added, "We think it has reached the right formula with its global content to balance costs and generate increasing profitability, while its ad-supported tier and password-sharing crackdown should further boost cash generation."
Wedbush rates Netflix stock as outperform with a 12-month price target of 410. The firm added Netflix stock to its "best ideas list" on Wednesday.
UBS analyst John Hodulik upgraded Netflix stock to buy from neutral after the earnings report. He also raised his price target to 390 from 350.
Netflix will benefit from easing competition in the direct-to-consumer video space as peers focus on profits, he said in a note to clients. Hodulik sees improving profits and free cash flow ahead.
Netflix Stock Is Tops In Industry Group
Netflix stock has formed a cup-with-handle base with a buy point at 349.90, according to IBD MarketSmith charts.
Meanwhile, Netflix stock ranks first out of 21 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. It has an IBD Composite Rating of 86 out of 99.
Catalysts for Netflix stock recently have included the addition of an advertising-supported service level and efforts to monetize account sharing.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
