Netflix adds whopping 15.77 mn subscribers during lockdown, warns of future growth decline

Filed in Blog by on April 22, 2020 0 Comments

Netflix has brought good news for its investors with a high jump in subscriber growth. The streaming service added a net 15.77 million paid streaming customers in the first quarter of 2020, much higher than the previous guidance, due to the worldwide lockdown. However, it has also warned of a decline in viewing and growth further down the road as governments will lift the home confinement orders with progress against COVID-19.

“Our internal forecast and guidance is for 7.5 million global paid net additions in Q2. Given the uncertainty on home confinement timing, this is mostly guesswork. The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown,” the company stated in a letter to its shareholders.

“Some of the lockdown growth will turn out to be pull-forward from the multi-year organic growth trend, resulting in slower growth after the lockdown is lifted country-by-country. Intuitively, the person who didn’t join Netflix during the entire confinement is not likely to join soon after the confinement,” it added.

Netflix founder-CEO Reed Hastings later said in an earnings call that the long-term implication is still tough to predict as the world is grappling with uncertainty. But he also added that they are certain about “internet entertainment’s” growth in people’s lives and it will be gradually more important in the next five years.

In its first quarter report, the streaming service reported revenue along the line of guidance despite nearly double growth of subscribers as sharp rise in dollar has offset international revenue. The revenue for the quarter was at $5.77 billion, while net income stood at $709 million with EPS of $1.57.

As it has paused most of its productions across the world in response to the crisis, the impact will be less cash spending this year as some content projects are pushed out. This will shift out some cash spending on content to future years. Netflix hopes this dynamic may result in more lumpiness in its path to sustained free cash flow profitability.

“The one thing that’s not widely understood is that we work really far out, relative to the industry, because we launch our shows all see all episodes at once, and we’re working far out all over the world. So our 2020 slate of series and films are largely shot, and we are in post production remotely in locations all over the world. So, and we’re actually pretty deep into our 2021 slate. So we’re not anticipating big moving things around,” Netflix chief content officer Ted Sarandos commented in an earnings call on the production stoppage’s impact on Netflix.

However, the streaming giant remains equally uncertain about when production will resume. But it has emphasised that it will look for the ability to test for the virus, work with production partners and local governments. It will also try to learn from its current experiences in Iceland and South Korea where productions are still on and will apply the same to other geographies, as Sarandos shared.

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