As the world went into lockdown to stop the spread of COVID-19, businesses closed their locations and sent employees home. As of April 28,the S&P 500 is down 12% YTD, unemployment claims reached an all-time high and the road to reopening is forecasted to be long and arduous. However, not all companies have suffered equally. Netflix Inc. is up 23% YTD, one of the few businesses which the coronavirus has not weighed heavily on.
Netflix ended its first quarter of 2020 with a record breaking 15.8 million new subscribers. People around the globe who are stuck inside have turned to streaming services to entertain them, leading to an unprecedented rise in customers. The nearly 16 million net customer additions were more than double what Netflix had forecasted in the prior quarter, raising their total subscribers to 182.9 million internationally.
Of those 182.9 million subscribers, 69.97 were located in North America, 58.73 in the EMEA region, 34.32 in Latin America and 19.84 in Asia Pacific. The largest increases in subscribers came from overseas, demonstrating the success of Netflix’s international expansion.
However, Netflix has acknowledged that the breakneck pace of growth was unlikely to continue as worldwide quarantine measures were eased. “We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon,” said Netflix in its letter to shareholders, noting that much of their growth came at the very start of lockdown orders.
CEO Reed Hastings later added, “It’s essentially a pull-forward at the rest of the year. So, our guess is that subs will be light in Q3 and Q4 relative to prior years because of that. But we don’t use the words guess and guesswork lightly. We use them because it’s a bunch of us feeling the wind.”
Despite uncertainty from COVID-19, the company still projected adding another 7.5 million new subscribers in the second quarter of 2020. That is “well ahead of the 5.6 million analysts were expecting,” according to FactSet.
Netflix has also noted the its pipeline of new content, including Netflix originals such as Tiger King: Murder, Mayhem and Madness, has been halted by the shutdown of TV and movie production. The streaming giant has said it is “able to operate remotely with minimal disruption in the short to medium term,” however with production on all movie and television content shut down indefinitely, their pipeline will undoubtedly be affected.
Despite this, Netflix has announced that “the 2020 slate of series and films are largely shot and we’re pretty deep into the 2021 slate.” In addition, its animation team is working from home and writers are continuing to work on new scripts.
Netflix generated revenue of $5.77 billion for the first quarter, up from $4.52 billion a year earlier. Revenue growth was slightly offset by a significantly stronger U.S. dollar, which lowered its international revenue. Profit rose significantly, up to $1.57 a share from $0.76 a share last year. It also beat analyst estimates of $1.64 a share.
While the start of 2020 depressed Netflix’s valuation with concerns of competition from new streaming giants such as Disney+, it still holds a clear lead in the streaming market and a strong competitive moat.
