Wall Street ignores a rare earnings from Netflix.
Shares of Netflix (NFLX) exploded 13% in pre-trading on Wednesday, indicating that the stock will open at a record high, despite the lack of earnings on Tuesday night. To be sure, the report had plenty of feed for the Netflix bulls to tackle the bears roaring over the earnings miss.
The company surpassed 200 million paid subscribers for the first time, driven by a world that still consumes large amounts of content at home during the COVID-19 pandemic. Meanwhile, the raw figures in the quarter indicate that Netflix did not see subscribers clash with the latest price increase that took place in October.
‘Importantly, although Netflix beat customer expectations in all major areas, Netflix’s most mature market, US / Canada, reported significantly better than expected nearly + 900,000 net new subscribers (compared to our + 375,000 expectation), emphasizing that the ultimate penetration for NFLX services worldwide may be higher than expected, ”said Jeff Wlodarczak, an analyst at Pivotal Research Group.
Here’s how Netflix performed in the quarter.
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Net sales: $ 6.64 billion versus $ 6.63 billion estimate
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Diluted VPA: $ 1.19 vs. $ 1.36 estimate
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Additions for Global Paid Subscribers: 8.51 million against 6.03 million expected
But go deeper, and you understand why Wall Street may be more excited about the Netflix story than it has been for some time. The company achieved the earnings day of bullish indicators.
First, Netflix posted a 25% operating margin in the first quarter. This would be a significant increase in the already impressive rate of 14.4% in the fourth quarter. Netflix’s highest operating margin in 2020 was 22.1% in the second quarter. Reading Wall Street: as expected, the combination of a significantly higher number of subscribers leads more for a service to stronger profits.
However, Netflix did not stop there. It adds to this nugget in the revenue statement: “We believe we no longer have a need to raise external funding for our day-to-day operations.” The company also increased its cash flow guidance for 2021 by $ 1 billion to the break-even point. As Netflix’s business model has long required debt to function, these improved prospects for free cash flow are being embraced by the bulls.
“Netflix has been working on this for a number of years now and is now in the unique position to continue its aggressive spending on content while still generating significant future cash flow,” said Jefferies analyst Alex Giaimo.
The last sweetener in the quarter: Netflix has indicated that it may resume share buyback soon, as from time to time from 2007 to 2011.
Giaimo, ‘although the 4Q undertone will attract the most attention, we believe that the improved commentary on free cash flow and future capital independence is the most important positive takeaway.
And you thought ‘Cobra Kai’ was the reason for the Netflix shares. Nope.
Yahoo Finance Technical Editor Dan Howley contributed to this story.
Brian Sozzi is a general editor and anchor by Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and so on LinkedIn. Julia La Roche is a correspondent for Yahoo Finance. Follow her further Twitter.
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