Netflix Stock Plunges After Earnings Report and Leadership Change

Netflix shares plummeted 9% in extended trading on Thursday following the release of its first-quarter earnings report, which exceeded Wall Street expectations for revenue. The company reported $12.25 billion in revenue for the quarter, a 16% increase from the same period last year.

Thursday's earnings report marked the company's first since it abandoned 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, reported during the same period last year.

Guidance and Governance Change

Despite the strong earnings, Netflix maintained its previous full-year guidance of revenue between $50.7 billion and $51.7 billion. The company expects second-quarter revenue to increase 13% and reiterated its warning that content spending would be weighted in the first half of the year due to the timing of title launches.

Netflix also announced that co-founder and current chairman Reed Hastings would exit the board in June when his term expires. Hastings stepped down as CEO in 2023 and will now focus on philanthropy and other pursuits. "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.

Co-CEO Ted Sarandos dismissed speculation that Hastings' departure was related to the proposed Warner Bros. Discovery deal, stating that Hastings was "a big champion for that deal. He championed it with the board. The board was unanimous."

Advertising Revenue and Price Changes

Netflix reiterated its goal of reaching $3 billion in advertising revenue in 2026, which would mark a doubling year over year. The company introduced its cheaper, ad-supported tier in 2022 and has since emphasized this avenue for revenue expansion.

Netflix reported "slightly higher-than-planned subscription revenue" in the first quarter, which helped propel an 18% jump in operating income. The company also announced a price increase across all its streaming plans last month, citing the strong value it provides to members. Co-CEO Greg Peters stated that the price increase was always part of the company's plan for the year and that the rollout is ongoing.

"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.

Expansion into Live Sports

Netflix's expansion into video podcasts and live sports, including the World Baseball Classic, helped its "primary internal quality engagement metric" reach a new record in the first quarter. The company is currently in discussions with the NFL to "expand the relationship" and potentially stream more games in the future.