Investopedia defines a “correction” as a “decline of 10% or greater in the price of a security, asset, or a financial market.”
This was Netflix’s correction quarter.
Shares slumped more than 10% after hours after Netflix announced it had added just under 4 million subscribers in the first quarter — missing the company’s forecast of 6 million. Netflix also said it expected a mere 1 million paid net additions for the second quarter. To put that in perspective, Netflix added 10 million subscribers in last year’s second quarter.
Netflix benefited from a surge of demand for its streaming service in the first six months of the pandemic, adding nearly 26 million subscribers in the first six months of 2020. The company didn’t see those gains coming at the time, and now it underestimated the pullback as the pandemic appears to be winding down.
Still, there’s room for long-term Netflix bulls to remain optimistic. The company says it expects subscriber growth to reaccelerate in the second half of 2021 as a backlog of new shows and movies become available that were delayed amid pandemic shutdowns. Further, average revenue per user continues to climb in all regions of the world. The average user in the U.S. and Canada now pays $14.25 per month for Netflix, up about 9% from a year ago.
Forecasting just 1 million new subscribers for next quarter may be a purposefully conservative guidance as Netflix, along with the rest of the world, readjusts to post-pandemic life.
International growth and APRU gains will likely be what drive Netflix shares even higher if the company can deliver.
This quarter brought Netflix’s pandemic surge back to earth. If the theme of the second half of the year is a return to reality, that’s probably good news for Netflix. Reality has been quite kind to Co-CEO Reed Hastings’ company.