Netflix Beats Estimates but 9% Selloff Signals Investor Doubt on Outlook

Netflix Beats but After-Hours Selloff Says Investors Are Looking Past the Numbers

Netflix reported $12.25 billion in revenue and $5.28 billion in net income for the first quarter. Both topped expectations and earnings per share blew past forecasts. Then shares dropped 9% after hours. Strong numbers and a selloff in the same breath. That’s the Netflix story Thursday night.

Giving Back 50% of Recent Rally

Technically, Netflix hit a recent bottom at $90.69 on March 20, and has benefited greatly from the broad rally in the Nasdaq and S&P that began 10 days later. Before the report was released, the stock was trading at $108.95. After the report it’s at $98.24. This puts it near the lower end of its 50% to 61.8% retracement zone at $99.82 to $97.67. So what took 18 sessions to build, took just hours to take back 50%. Furthermore, the stock is now on the weak side of the 50-day moving average at $106.04, but still holding the 100-day moving average at $91.61.

Net income nearly doubled year over year but a $2.8 billion termination fee from the canceled Warner Bros. Discovery deal did most of the work. Strip that out and the business is still solid, just not as dramatic as the headline suggests. Investors noticed that difference immediately.

The ad-supported tier is gaining real traction. Netflix is targeting $3 billion in ad revenue by 2026. Prices went up and password sharing got locked down. Some subscribers moved to cheaper plans. Revenue per user held anyway. The second engine is running.

Content Spending Peaks in Q2

Netflix is spending more on content in the first half of the year with costs expected to peak in the second quarter before easing. That’s tied to the timing of major releases. Some Warner Bros. deal-related costs are hitting earlier than planned but full-year estimates haven’t changed. Management is signaling they have it under control.

Reed Hastings Leaving the Board Spooked the Market

Reed Hastings built Netflix. He stepped down as CEO in 2023 but nobody thought he was really gone. Thursday night he announced he’s leaving the board in June. That news hit the same moment as the earnings report. Investors didn’t know what to do with it. Good numbers from a company losing its founder in the same breath. They sold it.

Outlook Is Steady but the Bar Is High

Netflix guided for 13% revenue growth in the second quarter and held its full-year forecast unchanged. Advertising, live sports and video content are the growth levers going forward. I think the market understands the strategy. What it doesn’t know yet is who drives it without Hastings looking over the room. That’s the question the 9% drop is asking. Is this a sign of a top or weakness? We should find out on Friday with the follow-through move. We’ll also find out if this is stock-related or broad-based market related.

More Information in our Economic Calendar.