Reed Hastings, Netflix’s co-founder and then-CEO, in Sydney to meet with executives of other subscription streaming services on Feb. 25, 2022.
Wolter Peeters | Fairfax Media | Getty Images
Netflix shares fell 9% in extended trading on Thursday after the streaming giant released its first-quarter earnings report and announced a key governance change.
The company beat Wall Street expectations for revenue, reporting $12.25 billion for the first quarter, above the $12.18 billion expected by analysts polled by LSEG and 16% higher than the $10.54 billion it reported in the year-ago quarter.
Thursday marked the company’s first earnings report since it walked away from its proposed acquisition of Warner Bros. Discovery’s streaming and film assets in February.
Netflix reported net income of $5.28 billion, or $1.23 per share, nearly double the $2.89 billion, or 66 cents per share, that it reported during the same period last year. The company cited higher-than-projected operating income and the $2.8 billion termination fee that it received after the WBD deal fell through.
Reported earnings per share were not comparable to analyst expectations of 76 cents because of the impact of the termination fee.
Still, Netflix maintained its previous full-year guidance of revenue between $50.7 billion and $51.7 billion.
The company said it expects second-quarter revenue to increase 13% and reiterated its earlier warning that content spending would be weighted in the first half of the year due to the timing of title launches. Netflix added that it expects the second quarter to have the highest year-over-year content amortization growth rate in 2026, before lowering in the second half of the year.
Despite dropping its proposed deal for WBD’s assets, that would-be transaction will still affect Netflix’s finances this year. Netflix Chief Financial Officer Spencer Neumann said Thursday that while some of the initially planned costs related to the deal won’t “fully materialize,” some of the costs that had been planned to carry into 2027 would now be moved up to 2026. He added that the company is “still in the ballpark … of the total that we were projecting for total M&A-related expenses in the year.”
On Thursday, Netflix also announced that Reed Hastings, Netflix’s co-founder and current chairman, would exit the board in June when his term expires.
Hastings stepped down from his CEO role in 2023. Greg Peters, who had served as chief operating officer, stepped into the co-CEO role alongside Ted Sarandos.
“Netflix changed my life in so many ways, and my all‑time favorite memory was January 2016, when we enabled nearly the entire planet to enjoy our service,” Hastings said in the company’s shareholder letter on Thursday. Hastings will now focus on philanthropy and other pursuits, according to the letter.
On Thursday, an analyst questioned whether the departure of Hastings was related to the proposed WBD deal.
Sarandos knocked that down, adding that Hastings was “a big champion for that deal. He championed it with the board. The board was unanimous.”
Looking in-house
Netflix on Thursday reiterated that it’s on track to reach $3 billion in advertising revenue in 2026, which would mark a doubling year over year, as that newer revenue line shows growth.
The company first introduced its cheaper, ad-supported tier in 2022 and has since been emphasizing that avenue for revenue expansion — even as it raises subscription prices and cracks down on password sharing in a bid to boost subscriber counts.
In January, Netflix said it had reached 325 million global paid subscribers. Netflix no longer provides quarterly updates on its membership numbers.
It said Thursday that “slightly higher-than-planned subscription revenue” helped propel an 18% jump in operating income during the first quarter.
And last month Netflix announced it would once again raise prices across all of its streaming plans.
“Our recent price changes have gone well, reflecting the strong value we provide members,” the company said in the shareholder letter on Thursday.
Co-CEO Peters said on Thursday’s call that the price increase was always part of the company’s plan for the year. While Peters said the rollout of the price changes is still ongoing, so far everything is consistent with what Netflix has previously seen as a result of price changes — such as members dropping memberships or switching to cheaper price plans.
“We look to provide more and more value to our members … invest the revenue that we’ve got successfully, and well, occasionally, when we’ve added more value, we ask our members to contribute more so we can invest that into delivering them even more entertainment value,” Peters said.
The company said Thursday that its expansion into video podcasts, as well as its showing of the World Baseball Classic helped its “primary internal quality engagement metric” to reach a new record in the first quarter.
Live sports have become a big part of Netflix’s platform, and on Thursday co-CEO Sarandos said the company is currently in discussions with the NFL to “expand the relationship.” While Netflix doesn’t have a typical NFL package, it has streamed NFL games on Christmas Day for the past few years.
Correction: This story has been updated after LSEG corrected its assessment of Netflix’s earnings per share. Reported EPS is not comparable to analyst estimates because of the impact of the WBD termination fee.
