Shares of Netflix Inc. (NFLX, Financial) initially soared on the back of reporting first-quarter global paid subscriber additions close to twice that of consensus estimates. Despite this, the gains declined when the company warned that viewership might decline when governments start lifting shelter-in-place orders.
For the quarter ending March 30, the Los Gatos, California-based company reported 15.77 million in net new subscriptions, outperforming the FactSet estimate of approximately 8 million. Despite the high number of new subscriptions, revenue remained on par with management’s guidance due to the appreciation in the U.S. dollar versus other currencies, according to the company’s shareholder letter.
Company sees surge in new subscriptions during first quarter, yet warns of decline in future quarters
CEO Reed Hastings said in the company’s shareholder letter that while membership growth during January and February stayed in line with growth over the past two years, membership growth surged in March when the coronavirus outbreak prompted countries around the world to enact lockdown and shelter-in-place orders.
Despite the surge in membership growth, Netflix warned that viewership is expected to decline over the remainder of the year as governments lift shelter-in-place orders. Further, the company’s production shutdown delayed several title releases, including “Money Heist” and “Stranger Things,” two series not planned for the third quarter of 2020.
Shares tumble despite early boost
Shares of Netflix sank to an aftermarket low of $429.25 on the company’s warning that membership growth might decelerate for the rest of the year. The stock initially soared to $468.01 as investors pounced on the company’s high membership growth for the March quarter.
GuruFocus ranks Netflix’s profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank and an operating margin that has increased approximately 18% per year on average over the past five years. Despite this, the company’s valuation ranks 1 out of 10 on several signs of overvaluation, including price valuations underperforming over 95% of global competitors.
Netflix is listed as a James Montier Short Screen candidate: The company has a Piotroski F-score between 1 and 3 and a price-sales ratio above the 90th percentile of the industry. Premium members can view the list of other short screen candidates.
David Einhorn (Trades, Portfolio)’s Greenlight Capital increased its short position in Netflix according to the hedge fund’s December 2019 shareholder letter.
Disclosure: No positions.
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