Netflix broke subscriber records in 2020. Will it slow down?
Netflix had a banner year in 2020, boosted by a global pandemic that triggered a wave of home entertainment viewing and popular series such as “The Queen’s Gambit.”
The Los Gatos, Calif., streamer broke its record for net additional subscribers in 2020, gaining 37 million for the year — compared with its previous record gain of 28.6 million new subscribers in 2018 — and for the first time surpassed 200 million subscribers worldwide.
Due to the surge of subscribers during the first half of last year, Netflix projected that growth would slow in the fourth quarter.
The number of new subscribers declined 3% to 8.5 million in the fourth quarter compared with a year earlier.
Still, the growth was better than expected. The company and analysts had projected roughly 6 million subscriber additions in the quarter.
Netflix cited the success of original programming such as “The Queen’s Gambit,” which premiered in October, drawing 62 million households in its first 28 days.
The company that defined the concept of binge watching has continued to reinvent itself. But as Disney, Apple and others enter the streaming business, Netflix faces the biggest challenge in its history.
Netflix revenue in the fourth quarter increased 22% to $6.6 billion compared with the same period last year, while net income declined 8% to $542 million, or $1.19 a share, during the quarter. Revenue beat analysts’ projections, but Netflix missed Wall Street’s earnings estimates of $1.36 a share, according to FactSet.
Netflix said its fourth-quarter net income included a $258-million noncash loss related to its European debt.
The company is the dominant video subscription streaming service in the U.S., but rivals such as Disney+ are gaining ground. A significant advantage Disney has is its deep library of children’s content and popular brands including “Star Wars” to attract new subscribers.
Disney+ had seven of the top 10 movies that were streamed last year based on time spent viewing, according to Nielsen. Many of those titles were animated. Disney+, which launched in November 2019, already has more than 86 million subscribers.
Netflix is also dealing with licensed programs that are popular with its viewers moving off its platform. In January, “The Office,” one of the most watched licensed shows, left Netflix’s library and joined NBCUniversal’s Peacock streaming service.
As Netflix faces a drop in U.S. subscribers, the Silicon Valley streaming giant is expanding animated kids shows in India and other countries. Its new series “Mighty Little Bheem,” was developed in India but has become a global hit for Netflix.
Meanwhile, Netflix has invested heavily in its own original programming. The company has produced animated movies, such as last year’s “Over the Moon,” and last week announced 70 new movies that will stream on its service this year.
The company has also recruited high-profile showrunners to develop content for the service.
Shonda Rhimes’ “Bridgerton,” based on romance books by Julia Quinn and released in December, will be watched by 63 million households in its first four weeks, according to Netflix’s projection. The company counts a view as at least two minutes.
This month, Netflix released “Lupin,” a French series about a burglar that has become one of its most popular shows in the U.S.; it is estimated that it will be viewed by 70 million households in its first 28 days.
“Our strategy is simple: If we can continue to improve Netflix every day to better delight our members, we can be their first choice for streaming entertainment,” Netflix said in a letter to shareholders Tuesday.
Amid rising competition, analysts said they believe Netflix has opportunity to grow its user base abroad in countries including India. In 2020, 83% of its additional subscribers came from outside the United States and Canada.
“Despite increasing competition from Disney and others, Netflix had its strongest year yet and will look to grow further in 2021, with a strong content release slate already planned,” said Eric Haggstrom, a forecasting analyst with research firm EMarketer. “So far, Netflix has been a clear winner of the streaming wars.”
The company recently raised its prices in the U.S., attributing the increase to the amount of money it reinvests in its content.
Netflix said it expected to be able to fund its daily operations without raising more financing, citing an $8.2-billion cash balance and a $750-million undrawn line of credit. The company said it will consider stock buybacks.
As the pandemic continues, it is unclear what effect the health crisis will have on entertainment companies. A recent surge in COVID-19 deaths has caused some local productions, including shows that stream on Netflix, to pause or delay work.
Netflix said Tuesday its productions are running in most regions with more than 500 titles in post-production or slated to stream soon on the platform.
Netflix shares rose $3.79, or 0.8%, to $501.77 on Tuesday. In after-hours trading, the stock surged to $562.60, up 12%.
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