Netflix Inc. (NASDAQ:NFLIX) announced its financial results for the first quarter of 2024 after the closing bell yesterday, showcasing robust earnings that surpassed expectations with significant growth in both revenue and subscribers. However, the market reacted with skepticism, questioning the sustainability of this growth as the company’s shares took a hit in after-hours trading.

Despite reporting an impressive subscriber count of 270 million worldwide—a key metric for the streaming giant—the company stated that it would cease regular reporting of these numbers starting in 2025, opting instead to focus on engagement metrics. This shift, coupled with a revenue forecast for Q2 that fell short of analyst expectations, contributed to a 5% drop in stock price to $580.02 per share as of 7:41 pm ET.

For Q1 2024, Netflix reported a 15% increase in sales, reaching $9.3 billion, compared to $8.1 billion in the same period last year. This figure slightly exceeded the $9.2 billion anticipated by analysts. Operating income for the quarter rose dramatically by 54% to $2.6 billion, with operating margins expanding by seven percentage points to 28%. Earnings per share (EPS) also saw a significant boost, coming in at $5.28 compared to the expected $4.53, marking a 16.66% surprise rate over forecasts.

The company’s cash generation from operating activities stood at $2.2 billion for the quarter, accounting for over 94% of net income. In addition, Netflix repurchased 3.6 million shares for $2 billion during the quarter.

Looking forward, Netflix aims to bolster its growth through enhancements to its content catalog and by accelerating the availability of TV shows, games, and live programs. The company is also focusing on scaling its advertising operations, which saw modest growth of 1% on a reported basis and 4% on a currency-neutral basis in the first quarter.

Netflix’s competitive advantages include its superior recommendation algorithm, broad international presence across over 190 countries, and a deeply engaged community that enjoys its original films and series. These strengths are pivotal as Netflix faces increased competition and currency fluctuations that may impact future growth.

For 2024, Netflix forecasts revenue growth between 13% and 15%, with an operating margin target of 25%, revised up from the initial 24%. Strategic priorities include improving service quality to enhance user engagement and value, expanding its paid-sharing functionality, launching new advertising offerings, and achieving sustainable revenue growth.

As the streaming landscape continues to evolve with formidable competitors like Disney+ and Amazon Prime, Netflix’s adaptations and strategic shifts will be crucial to maintaining its market leadership and meeting the high expectations set by its valuation.