Netflix Q1’FY23 Earnings Summary

- Revenue improved to +3.7% y-o-y

- Operating margin improved to +21.0% y-o-y

- Global streaming paid memberships improved to +4.9% y-o-y

- Net cash flow from operating activities also vastly improved

They have also delayed the US rollout of its attempt to curb account sharing (from Q1 to Q2)due to the negative backlash received from its users, which led to a “cancel reaction” in markets such as Canada and Spain. However, the crackdown eventually resulted in higher subscriptions and revenue as borrowers activated their own accounts.

Netflix believes they can convert 20-30% of the 100 million households that share their accounts globally into paying members. They announced 2 new programs last year to boost their revenue: (1) crackdown on password sharing and (2) introduction of an ad-supported service. 

1. Full-year 2023 financial objectives are on track, with Q2’FY23 revenue forecasted at $8.2 bil, up +3% y-o-y

2. Recent launches of paid sharing are encouraging, with broader rollouts planned for Q2 instead of Q1, which will result in membership growth and revenue benefit falling in Q3 (rather than Q2)

3. Q2’FY23 operating income is forecasted at $1.6 bil (roughly flat y-o-y), with an operating margin of 19% compared to 20% in Q2’FY22, primarily due to the appreciation of the USD against most non-USD currencies

4. Netflix anticipates y-o-y operating profit growth and operating margin expansion for full year 2023 (assuming no significant swings in FX) and targets a 2023 operating margin of 18-20%

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