Netflix racked up subscribers early in the pandemic. Now, not so much
Netflix significantly missed its estimates for how many subscribers it would add in the first quarter, citing a delay in productions during the pandemic as a factor.
The company had projected it would add 6 million subscribers in the quarter. Instead, it added 3.98 million, a 75% decline from a year earlier, when Netflix gained a whopping number of customers as people sheltered at home. It also was a 53% decline from the prior quarter.
“It’s a big miss that clearly shows the pandemic-induced surge in subscription is winding down, and faster than expected,” Haris Anwar, senior analyst at Investing.com, said in a statement.
Although the company missed Wall Street estimates on new subscribers, it beat expectations on revenue and earnings. Netflix’s revenue rose 24% in the first quarter to $7.16 billion, compared with a year earlier. Net income was $1.7 billion in the first quarter, compared with $709 million a year earlier.
The company said its paid membership growth slowed because of the “big COVID-19 pull forward in 2020" and a lighter content slate due to production delays.
“As you know, the extraordinary events of COVID ... continue to have a big impact on the world and for us at a minimum, creates just some short term choppiness in some of the ... trends that we see in our business,” said Chief Financial Officer Spencer Neumann in an earnings presentation.
The company said it expects a “strong second half” with upcoming films and the return of new seasons of its biggest hits such as “The Witcher.”
“In the short-term, there is some uncertainty from Covid-19; in the long-term, the rise of streaming to replace linear TV around the world is the clear trend in entertainment,” Netflix said in a letter to shareholders Tuesday.
The company’s stock price was down about 8% in after-hours trading. Netflix said it expects subscriber growth to slow in the current quarter as well — projecting that it will add just 1 million people.
The company said competition from rivals was not a factor in why it fell short of expectations for subscriber growth. Netflix said the level of its first-quarter churn was below that of a year earlier.
“There is no real change that we can detect in the competitive environment,” Netflix co-CEO Reed Hastings said. “It’s always been high and remains high.”
Hastings also said that he does not believe there will be any material effect from future openings and closings related to the pandemic.
Sony Pictures movies will go to Netflix for their pay-TV window, and the streamer will get a first look at the studio’s straight-to-digital titles.
Netflix has said it will release 70 new movies this year and its content continues to amass awards, including 10 Golden Globe wins for its shows and movies and 35 Oscar nominations. Earlier this month, Netflix and Sony announced a multiyear deal in which Sony will distribute its movies on the platform after they are released in theaters and home video.
As a result of its investment in content, Netflix increased the prices of some of its subscription plans in the U.S. last year. The company also increased its crackdown on password sharing among people who are not in the same household.
“While rival studios have increasingly pivoted to their own direct-to-consumer offerings, the company has recently and decidedly seemed even more pragmatic in its content acquisitions,” Tuna Amobi, CFRA Research equity analyst, wrote in a research note, pointing out the Sony deal and Netflix’s recent purchase of the rights to sequels to the popular mystery movie “Knives Out.” Amobi has a “buy” recommendation on the stock.
Netflix executive Vernā Myers shares how the streamer improved Black representation at the company and the efforts it is making to improve diversity on its shows and staff.
Netflix said it will spend more than $17 billion in cash on content this year and is on track for its free cash flow to be about break-even for the 2021 calendar year. The company said it is “back up and producing safely in every major market with the exception of Brazil and India.”
“We want our titles to be talked about by audiences across the globe,” Netflix said. “Because of our broad distribution and highly engaged members, our titles not only generate high levels of viewing but also can pierce the cultural zeitgeist and transcend the film and TV industry.”
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