Netflix plunges after Covid pandemic boom almost ceases in fiscal first quarter21

Netflix Inc. has attributed the pandemic to record growth in 2020. Now it blames the pandemic for the worst first quarter in eight years.

The streaming service added far fewer new customers than Wall Street predicted in the first three months of 2021, even missing its own forecast by millions of subscribers. And the current quarter will be tougher, Netflix said Tuesday, forecasting a gain of just 1 million new customers – a fraction of the 4.44 million forecast by analysts. The dismal growth sent its shares plunging to 13%.

Netflix has been warning for months that growth will slow once customers come out of their Covid-19 hibernation, but few expected the business to slow down so dramatically. The first quarter of 2020 was the strongest in its history, with 15.8 million new customers, and Netflix’s pace was still strong in the fourth quarter.

“We’ve had those 10 years of growing as good as silk,” Executive Chairman and Co-CEO Reed Hastings said in an investor webcast. “It’s a bit wobbly right now.”


Netflix added 3.98 million subscribers in the first quarter, compared to an average analyst estimate of 6.29 million and its own forecast of 6 million. This marked the weakest start to the year since 2013, when Netflix added around 3 million customers. If the company’s forecast for the current quarter holds, it will be the worst three-month period for Netflix since the debut of its streaming service.

Netflix has blamed a ‘pull forward effect of Covid-19’, meaning the pandemic accelerated its growth in 2020 when everyone was stuck at home and needed something to watch. Now that push is weighing on the company’s 2021 results.

“It really comes down to Covid,” Spencer Neumann, the company’s chief financial officer, said during the webcast.

A lack of new shows also contributed to the crisis, the company said. While there were popular hits available, like “Bridgerton” and “Cobra Kai,” new releases slowed down after mid-January and growth faltered.

Production shocks

The pandemic prompted the release of many of the company’s key titles in the second half of this year. Production was halted in 2020 due to the fallout from the pandemic. Netflix was able to maintain its release schedule during the first months of the Covid lockdowns because it had already completed many projects. But most of the movies and shows that were supposed to be shot last year have been postponed or canceled.

“There was nothing to watch this quarter,” said Michael Nathanson, analyst at MoffettNathanson LLC.

What Bloomberg Intelligence says

“It’s important not to confuse the short-term noise in user earnings with Netflix’s longer-term thesis, which we believe remains stronger than ever.” –Geetha Ranganathan, Senior BI Media Analyst

Netflix rejected the idea that competition was factored into its results, noting that its growth had slowed globally – not just in the crowded US streaming market. Disney +, HBO Max, and Peacock are yet to compete with Netflix in many parts of the world. Still, the company faces more rivals than ever before and some of the services are cheaper than Netflix, which hiked its prices in the United States in October. While production has resumed in all countries except Brazil and India, that won’t help Netflix until later this year. Its slate in the current quarter is also light.

Better form

The company’s response to the challenges remains the same as ever: to produce more shows. Netflix plans to spend $ 17 billion in cash on programming this year, up from $ 12.5 billion last year and $ 14.8 billion in 2019. It prioritizes investments in programming outside the United States. , where most of its new customers live.

Europe continues to be a positive point for Netflix. The streaming service added 1.81 million customers in Europe, the Middle East and Africa, making it the company’s number one region. “Lupine,” a French heist thriller, was the service’s most popular new series during the quarter. Asia is the company’s second fastest growing region.

Even with slower growth, Netflix is ​​in the strongest financial position in its history. It reported net income of $ 1.71 billion, more than double a year ago, and generated free cash flow of $ 692 million in the quarter. While this is partly due to the production borders, it also reflects a more solid foundation. The streaming service is profitable in many new markets, such as South Korea. Earnings were $ 3.75 per share last quarter, ahead of the estimate of $ 2.98.

Share buyback

After years of borrowing to fund production, Netflix said it no longer needed to raise outside funding to fund day-to-day operations. The company plans to reduce its debt and will repurchase up to $ 5 billion in shares.

Neither executives nor investors can be certain whether the trajectory for the first half of the year is temporary or a sign of a maturing company. Netflix fell 13% to $ 480 in extended trading, which would be a low in 2021. The stock was up 1.6% this year thanks to the close in New York on Tuesday.

When asked if it was time for the company to expand into a new venture, executives insisted that strong growth remains in entertainment. But they teased two potential areas for expansion in the coming years: consumer products and video games.

Either way, the main focus will be on airing more blockbuster shows, said Co-CEO and Chief Content Officer Ted Sarandos.

“What we need to do, week after week, is deliver programs that our members love,” he said.