Netflix shares fell 10% after announcing its Q1 2021 earnings, and investors see little room for growth despite better-than-expected results.

Online streaming giant Netflix released its Q1 2021 earnings this week. Despite beating the EPS estimate for the quarter by $0.76, the shares plunged over 10% in after-hours trading on the back of increased competition and a fall in weekly global paid net adds.

Despite the market’s reaction, the financial statements for the quarter reveal a strong position. Revenue grew year-over-year by 24.2%, and global streaming paid membership was up 13.6%. Moreover, the upside trend is set to continue, as indicated by the company’s forecast for the second quarter of the fiscal year. Paid memberships are forecast to rise by 8.1% but we can’t ignore the decelerating pace of growth.

Strong Cash Flow Position for Netflix

Stiff competition was mentioned multiple times in the market communique delivered by Netflix. Peacock, Paramount Plus, Amazon, and Disney have all eaten into Netflix’s market share.

Nevertheless, the future looks promising. The company has some of the most popular shows in the world, with one of its movies nominated in no less than ten categories at the upcoming Oscars. Customers enjoy Netflix’s offerings and that trend is still rising. It’s now up to Netflix to find better ways of monetizing this affection.

In terms of financial strength, Netflix sits on a strong net cash flow from operations that is up to $777 million for the quarter (from $260 million a year ago). Moreover, the company reiterated its forecast for the rest of the year.

Netflix even plans a $5 billion repurchase program, which is a sign that its shares may be undervalued. Typically, these bought back shares are considered treasury stock with no voting rights and no dividend payments, but the company could decide to issue them again to raise capital in the future. If the share price increases in the meantime, so will the shareholders’ equity.

In summary, Netflix delivered on its promises, but investors did not like the fall in paid net adds, and they see too little room for growth due to increased competition. Will the shares bounce back as a result of the buyback plan? It will take a few more quarters to answer that question.