Coronavirus Outbreak: Netflix adds 15.8 mn subscribers worldwide in 3 months; CEO warns pandemic-fueled spike temporary

Netflix more than doubled the quarterly growth it predicted in January, well before the COVID-19 outbreak began to shut down many major economies. It was the biggest three-month gain in the 13-year history of Netflix's streaming service.

FP Staff April 22, 2020 09:14:42 IST
Coronavirus Outbreak: Netflix adds 15.8 mn subscribers worldwide in 3 months; CEO warns pandemic-fueled spike temporary

Netflix picked up nearly 16 million global subscribers during the first three months of the year, helping cement its status as one of the world's most essential services in times of isolation or crisis.

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The quarter spanned the beginning of stay-at-home orders in the US and around the world, a response to the coronavirus pandemic that apparently led millions to latch onto Netflix for entertainment and comfort when most had nowhere to be but home.

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Netflix logo. Image from Reuters

It gained 15.8 million paying customers from January through March, bringing its global total to 182.9 million. Netflix had predicted it would add 7 million during the period.

Netflix more than doubled the quarterly growth it predicted in January, well before the COVID-19 outbreak began to shut down many major economies. It was the biggest three-month gain in the 13-year history of Netflix's streaming service.

The numbers — released Tuesday as part of Netflix’s first-quarter earnings report — support a growing belief that video streaming is likely to thrive even as the overall US economy sinks into its first recession in more than a decade.

“Our small contribution to these difficult times is to make home confinement a little more bearable," Netflix CEO Reed Hastings said while speaking to investors during a video call from a bedroom.

Investor optimism about Netflix’s prospects propelled the company’s stock to new highs recently, a sharp contrast with the decline in the broader market.

Netflix's shares initially surged in after-hours trading after the first-quarter report came out, although they soon fell back. One reason: The strengthening US dollar will likely depress the company's revenue from outside the U.S., which could dampen gains from some of its fastest-growing markets.

Currency effects also limited Netflix revenue growth to 17%, for a total of $5.8 billion, even though the company ended March with nearly 183 million worldwide subscribers, a 23% increase from the same time last year. Netflix earned $709 million in the first quarter, nearly tripling its profit from last year.

Netflix shares edged up by less than 1% in Tuesday's extended trading to $435.69, leaving them below last week's record high of $449.52.

Even though it faces plenty of competition, Netflix appears better positioned to take advantage of the surging demand for TV shows and movies largely because of its head start in video streaming.

Since beginning its foray into original programming seven years ago, Netflix has built up a deep catalog that can feed viewer appetites even though the pandemic response has shut down production on many new shows.

That stoppage could hurt Netflix as well, although analysts at Canaccord Genuity believe its video library will serve as a “content moat” that can keep most competitors at bay.

One notable exception is Walt Disney Co., whose recently launched streaming service is also stocked with perennial classics, especially for children who have even more free time than usual.

That’s one of the big reasons Disney’s service has amassed 50 million subscribers and why Netflix is basking in another resurgence in popularity. Netflix predicted it will add 7.5 million subscribers from April through June. That's nearly three times more than its average springtime gain of 2.7 million subscribers during the past seven years.

Hastings praised Disney's fast start in streaming as “stunning" in his video call with investors. “My hat's off to them," he said. “We are both going to do great work."

Most of the most popular programs Netflix has in the works for this year are already completed, including the fourth season of The Crown, its acclaimed series about Queen Elizabeth's continuing reign in the United Kingdom.

Even so, Hastings warned that subscriber growth seems likely to taper off during the second half of the year, given how many new viewers are poring into the service during the first half. That was just a guess, Hastings said, adding that the only thing he feels certain about these days is that video streaming win more converts for at least the next five years.

Investing.com senior analyst Haris Anwar said Netflix’s big gains showed “it’s the ultimate stay-at-home stock.”

“That said, there’s no guarantee that a global recession and increased competition won’t hit Netflix in the latter part of the year,” Anwar said. “There’s little clarity from the company about the future, and that’s likely to hurt the stock in the short run.”

Netflix said the shutdown of film and TV production around the world had temporarily increased its free cash flow but could delay some programming by a quarter. In the second quarter, the impact will be “modest” and mostly will affect dubbing in various languages, the company said.

Most programming for 2020, and much of 2021, already has been filmed and is being finished remotely in post-production, Chief Content Officer Ted Sarandos said in a post-earnings interview with an analyst.

“We don’t anticipate moving the schedule around much, certainly not in 2020,” Sarandos said.

For the just-ended quarter, Netflix’s earnings per share fell short of analyst expectations. The company posted diluted earnings per share of $1.57, below the $1.65 consensus, according to IBES data from Refinitiv.

Total revenue rose to $5.77 billion from $4.52 billion. Analysts on average had expected $5.76 billion.

Appreciation of the U.S. dollar, due partially to the coronavirus crisis, dragged on international revenue, the company said.

In the quarter, Netflix true-crime documentary Tiger King, about a colorful Oklahoma zookeeper, became a cultural sensation. It also released reality show Love is Blind, and a new season of Spanish-language thriller Money Heist.

(With inputs from agencies)

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