Netflix posts better-than-expected profits, to cease DVD rentals

Netflix Inc. reported better-than expected earnings in the first-quarter, although revenues were below forecast.

The company has also announced that it will close its DVD business in the latter part of this year. In the second quarter, they plan to introduce a new pricing structure which cracks down on password sharing.

Netflix reported a first-quarter profit of $1.31billion or $2.88 a share. This is down from $1.6billion or $3.53 a share a year ago, but still higher than the company’s expectations of earnings of $1.28billion or $2.84 per share.

The company had expected $8.24 billion in revenue for the quarter, but the actual figure was $8.16 billion.

CNBC reported that Refinitiv polled analysts who predicted earnings per share at $2.86 for revenue of $8.18billion.

Netflix (Nasdaq : NFLX) reported revenue in the United States of America and Canada increased 8% over the previous year to $3.61 Billion. This was driven by an increase of 9% in average revenue per member at $16.18.

The number of paid members worldwide increased by 5%, to 232.5 millions, with 74 million in the U.S., Canada, 77 in Europe, Middle East, and Africa, 41 in Latin America, and 39 in Asia.

Change of Plans

Netflix has also announced that it will launch a wide-scale rollout of "paid sharing," which forces users to create their accounts if they have shared others'. This is expected to happen in the second quarter. The company had originally planned to launch the program in the U.S. in the first quarter. However, the company said that the change would likely lead to a decline in membership in the near term, but will boost revenue in time and allow the company to make content investments.

Netflix wrote in a shareholder letter that 'while this means some of the anticipated membership growth and revenue benefits will fall in Q3 instead of Q2, we believe this would result in a more positive outcome for both our members as well as our business'.

The company has announced that it has implemented paid-sharing in four countries, and they are pleased with the results.

Netflix stated that the near-term engagement as measured by Nielsen and other third parties will probably shrink modestly as we implement paid sharing. Netflix said that the pattern would be similar to Latin America. Engagement growth will resume over time, as we improve our programming, and borrowers sign up for their own account.

The company also announced that it will end its DVD rental business in 25 years. Final DVDs will be shipped on September 29.

Netflix stated that it has always strived to offer the best possible service to its members. However, as the DVD market continues to shrink, this will become more difficult.

Netflix has said that it is on course to achieve its financial goals for 2023, which include a second-quarter operating profit of $1.6 billion (roughly flat year-over year) on revenue of $8.2 Billion, an increase of 3%.