Netflix Inc. - Healthy start to the year
20 Apr 2023- 1Q23 results were in line with our estimates. 1Q23 revenue/PATMI at 24%/24% of our FY23e forecasts. Currency was a 4% point drag to revenue growth.
- Revenue growth remained resilient at 4% YoY, supported by a 5% increase in membership base. Netflix added 1.8mn new members, mostly from Asia.
- 1Q23 operating income of US$1.7bn beat guidance by 5% on better management of expenses. FY23e FCF guidance increased by US$500mn to US$3.5bn due to improving operating leverage.
- We maintain ACCUMULATE with an unchanged DCF target price of US$388.00. Our WACC and growth rate assumptions remain the same at 12.2% and 3% respectively.
The Positives
+ Revenue growth remained resilient at 4% YoY, in-line with guidance. Netflix generated US$8.16bn in revenue for 1Q23 (4% YoY, 8% YoY constant currency), in line with its guidance, and our estimates. Growth was supported by a 5% increase in membership base (232.5mn) as the company added 1.8mn new members onto its platform. Asia was the main growth driver, with memberships increasing 17% YoY to 39.5mn, offset by a 13% decline in prices due to a combination of price cuts and FX headwinds. Earnings were also roughly in line, with EPS of US$2.88 vs guidance of US$2.82.
+ Operating metrics improving, within expectations. Netflix continued to operate within expectations. Operating Income of US$1.7bn beat its own guidance by 5% as a result of better expense management. Operating margin of 21% was also slightly above guidance – led by incremental margin expansion from advertising, with profit from its ad-supported plan better than that of Netflix’s standard plan in the US. The company reiterated FY23e operating margin to be in the 18-20% range (FX neutral basis), and also increased FY23e FCF guidance by US$500mn to US$3.5bn due to increasing operating leverage.
The Negative
– 2Q23e revenue guidance disappoints, indicating decelerating topline growth. Netflix issued a muted 2Q23e revenue guidance of US$8.2bn (3.4% YoY), representing a decline in topline growth. There are several reasons for this: 1) delay in launching its paid sharing initiative from late 1Q to 2Q, shifting revenue benefits into 3Q23e; 2) higher mix of membership growth in lower monetization regions, reducing overall prices; 3) expected FX headwinds to continue in APAC. The company also expects 2Q23e net additions similar to 1Q23 levels.
About the author
Jonathan Woo
Research Analyst
PSR
Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.
About the author
Jonathan Woo
Research Analyst
PSR
Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.
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