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. But in a letter to shareholders, Netflix management talked about the challenges created by the pandemic for it and the world’s people.
“In our 20+ year history, we have never seen a future more uncertain or unsettling. The coronavirus has reached every corner of the world and, in the absence of a widespread treatment or vaccine, no one knows how or when this terrible crisis will end. What’s clear is the escalating human cost in terms of lost lives and lost jobs, with tens of millions of people now out of work,” the letter says.
“At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term. Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth.
“In our case, this is offset by a sharply stronger US dollar, depressing our international revenue, resulting in revenue-as-forecast. We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon.”
The quarter spanned the beginning of stay-at-home orders in the U.S. 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.
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 U.S. 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 U.S. 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.
