Netflix (NFLX, Financial) shares rose 3% after reporting its Q1 earnings, showcasing a significant EPS beat—the largest in over two years. Although revenue growth was modest, the company provided optimistic Q2 guidance. Netflix reaffirmed its FY25 revenue and operating margin guidance, easing investor concerns about the impact of macroeconomic pressures on subscriber growth and retention, especially after a recent price hike.

• Starting Q1, Netflix will no longer provide quarterly updates on paid memberships and ARM. Instead, a bi-annual engagement report will be released alongside Q2 and Q4 earnings. Although losing the membership metric is disappointing, it was anticipated as Netflix had previously announced this change.
• Q1 revenue slightly exceeded guidance due to higher-than-expected subscription and ad revenue, although ad revenue remains small. UCAN (US & Canada) revenue grew by 9% year-over-year, down from 15% in Q4, affected by partial quarter price changes, plan mix, and no ad revenue from Christmas Day NFL games. Netflix expects UCAN revenue growth to pick up in Q2.
• The significant EPS boost was attributed to a 31.7% operating margin in Q1, surpassing the prior guidance of 28.2% and improving from 2024's 22.2-29.6% range. Netflix forecasts an even stronger margin of 33.3% in Q2, benefiting fully from the price increase. Despite strong Q1 and Q2 performance, FY25 guidance remains at 29% due to expected content expense increases in Q3-Q4.
• Recent price increases in major markets like the US, UK, and Argentina met internal expectations. Netflix's service has shown resilience in challenging economies, and a price hike in France is planned for Q2.

Overall, Netflix's Q1 report was solid, though not extraordinary. The absence of subscriber metrics requires adjustment, as Netflix shifts focus to revenue, margins, and EPS. The Q1 EPS upside and strong Q2 guidance were driven by reduced expenses rather than revenue growth, explaining the moderate market reaction. Despite concerns about cancellations due to price increases amid macroeconomic challenges, Netflix's performance remains robust, highlighting its success as competitors struggle for profitability.