Subscriber growth in focus amid Russia exit, churn concerns

Netflix (NFLX) is set to report quarterly results Tuesday after market close, and investors are bracing for a further growth slowdown amid the company’s exit from Russia and as its key North American market grows increasingly saturated.

Here’s what Wall Street expects Netflix will report for the fiscal first quarter, based on consensus data compiled by Bloomberg:

  • Revenue: $ 7.95 billion expected, $ 7.16 billion Y / Y

  • Earnings per share: $ 2.91 expected, $ 3.75 Y / Y

  • Net subscriber additions: 2.51 million expected, 3.98 million million Y / Y

If realized, new subscribers of 2.51 million would represent the smallest quarterly addition for Netflix since the second quarter of 2021. Subscribers grew by nearly 4 million in the same quarter last year. And in total, Netflix had more than 220 million global subscribers as of the end of last quarter.

Netflix has been grappling with slowing user growth for much of the past year, with new users slowing to a trickle after a pandemic-fueled surge in sign-ups. But further exacerbating this slowdown will be Netflix’s exit from Russia in early March, which came following the country’s invasion of Ukraine earlier this year. Cowen analyst John Blackledge estimated Russia comprised about 1 million subscribers for Netflix.

Other analysts have suggested Netflix could see elevated levels of churn in the first quarter in the US and Canada especially, since the company announced price increases for its North American subscribers earlier this year. With competition mounting from the likes of Disney +, HBO Max and other newcomers, users now have more options than ever to turn to instead of Netflix, should they choose to end one subscription in favor of another, some analysts said.

“Content dumps, where all episodes of a new season are delivered at the same instant, will likely keep churn high, as price conscious consumers can swap out of Netflix and shift to a competitor service after viewing the content they desire,” Wedbush analyst Michael Pachter said in a recent note. “Sustainable profit growth should continue as long as Netflix is ‚Äč‚Äčable to continue raising subscription prices, but competition may limit future price increases.”

BRAZIL – 2022/02/03: In this photo illustration, the Netflix logo seen displayed on a smartphone screen. (Photo Illustration by Rafael Henrique / SOPA Images / LightRocket via Getty Images)

But while a saturated North American market has left Netflix with relatively less runway to continue adding users, the company’s international growth prospects have recently been riper. For the fourth quarter, Netflix added more than 3.5 million subscribers in its Europe, Middle East and Africa geographical segment – or more than triple the number of new users it brought on in the US and Canada for the period. Subscriber growth in the Asia Pacific region also came in at nearly 2.6 million last quarter. Overall, subscribers grew by about 8.3 million globally last quarter.

Amid concerns over subscriber growth, Netflix’s shares have fallen to underperform the broader market so far this year. Shares have declined by 44% for 2022-to-date through Monday’s close, compared to an almost 8% drop in the S&P 500 over that period.

This post will be updated with Netflix’s first-quarter earnings results Tuesday after market close. Check back for updates.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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