Netflix Slumps as Paid Net Adds Miss Estimates by Wide Margin

Netflix beat sales and earnings estimates for the first quarter, but badly missed expectations for net paid subscriber additions.
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Shares of Netflix  (NFLX) - Get Report fell sharply Tuesday following the release of first quarter earnings and revenue results that topped estimates, but subscriber numbers that fell well short of expectations. 

Netflix reported first quarter earnings of $3.75 per share on revenue of $7.16 billion. Analysts were expecting Netflix to report earnings of $2.98 per share on revenue of $7.14 billion (Follow TheStreet's live blog of Netflix's earnings report and video with executives). 

But Netflix only added 3.98 million net paid subscribers in the first quarter versus its own previous guidance for 6 million adds and consensus estimates for 6.34 million adds. And its guidance for the second quarter was for just 1 million net paid additions, versus analyst estimates for 4.21 million net adds. 

"We believe paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays," the company said in its shareholder letter. 

The stock was falling 10.9% to $489.75 per share after hours Tuesday. 

Netflix finished the quarter with 208 million paid memberships, up 14% year over year, but below its own guidance of 210 million paid memberships. 

"The extraordinary events of Covid-19 led to unprecedented membership growth in 2020, as it pulled forward growth from 2021, and delayed production across every region," Netflix said.

Netflix said it anticipates that paid membership growth will re-accelerate in the second half of 2021, noting it expects a "very strong back half slate" with the return of some of its biggest shows like The Witcher and Sex Education, as well as large scale movies featuring Gal Gadot, Dwayne Johnson, Leonardo DiCaprio, Meryl Streep and others. A year ago, Netflix added 10 million paid subscribers in the second quarter. 

Netflix shares have risen just 1% year to date, but the stock is up nearly 30% over the last 12 months, compared to the S&P 500's gain of approximately 46% over the same time period. Netflix shares closed Tuesday's session down 0.88%.