What to expect from Netflix after its best quarter yet

22 Apr 2020346 Views

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Although the entertainment industry has been heavily impacted by Covid-19 restrictions, Netflix has reported its most successful quarter to date and announced some of the titles to be released on the platform in Q2.

On Tuesday (21 April), Netflix announced that it has seen a significant jump in subscriptions in the last three months and revenue of $5.77bn in the same quarter.

The company has said that the spike has been caused by consumers staying at home due to the spread of Covid-19.

The company warned shareholders that there’s likely to be a similarly dramatic decrease in users as lockdown orders and restrictions are loosened around the world in the coming months, but there is still a great deal of uncertainty as to when that will happen.

In an interview, Netflix CEO Reed Hastings said: “We don’t use the words guess and guesswork lightly. We use them because it’s a bunch of us feeling the wind and it’s hard to say. But again, will internet entertainment be more and more important over the next five years? Nothing’s changed in that.”

The figures

The company added a total of 15.8m new paid subscribers in Q1 of 2020 and expects 7.5m global paid subscriber additions in Q2 – though the company has acknowledged that this is little more than “guesswork” during uncertain times.

The company said: “The actual Q2 numbers could end up well below or well above that, depending on many factors, including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”

The registration figures for this quarter have broken the company’s previous record. Netflix now has 182.8m subscribers, making it one of the world’s largest entertainment services. In the first quarter of 2020, 2.3m new users were from the US and Canada while 13.5m signed up from elsewhere in the world.

Netflix’s revenue for Q1 of 2020 was $5.77bn, which is a 27.6pc growth year-on-year, from Q1 of 2019 when revenue was $4.5bn.

The company expects to have free cash flow for the year of negative $1bn or better, which is an improvement of its previous expectation of negative $2.5bn. In the earnings report, Netflix also reported that earnings per share had reached $1.57, which is below the Wall Street estimate of $1.65.

The company said that it has finished the quarter with cash of $5.2bn with its $750m unsecured credit facility undrawn.

In the letter to shareholders, the company wrote: “We have more than 12 months of liquidity and substantial financial flexibility. Our financing strategy remains unchanged – our current plan is to continue to use debt to finance our investment needs.”

Coping with Covid-19

The letter to shareholders opened by noting that the company has “never seen a future more uncertain or more unsettling” now that the coronavirus has reached “every corner of the world”.

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Netflix wrote: “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 video streaming company acknowledged that it is in a “fortunate” position as its service becomes more “meaningful” to people confined at home, while also being able to work remotely with minimal disruption in the short to medium term.

While some areas of the business have continued to run smoothly, Netflix said it has seen disruption to customer support and content production. The company has hired another 2,000 customer support agents, who are all working remotely, to meet increased demand.

Netflix wrote: “When it comes to production, almost all filming has now been stopped globally, with the exception of a few countries like Korea and Iceland. This has been devastating for millions of workers in the TV and film industry – electricians, hair and make-up artists, carpenters and drivers who are often paid hourly wages and work project-to-project.”

The company highlighted the $100m hardship fund it set up to help these workers and said that it has paid these crews for about seven weeks “with the goal of providing a bridge until government safety nets kick in”.

Netflix’s approach to content

The New York Times wrote that with cinemas closed for the foreseeable future, streaming has become one of Hollywood’s few “lifelines” as the entertainment industry takes a serious hit. Cable networks have lost sports programming and advertisers in the States have cut back on television spending by around $12bn.

Netflix is well-known for planning ahead, adding plenty of new titles before school breaks and winter holidays to occupy users when they are most likely to be at home. In this unique situation, the company didn’t get to prepare and plan content in the same way.

Despite that, the company highlighted some of the shows and movies that ended up being big hits early on in the year and during the beginning of the Covid-19 pandemic.

In Q1, 64m users watched docuseries Tiger King: Murder, Mayhem and Madness. Dating show Love is Blind attracted 30m viewers, while Netflix original film Spenser Confidential drew in 85m viewers. Money Heist is projected to attract 65m viewers in its first four weeks, while the third season of Ozark is projected to be viewed in 29m households.

In Q2, the company has acquired some new titles to release, including The Lovebirds, a comedy starring Issa Rae and Kumail Nanjiani. In this quarter, Netflix will launch Space Force, a new comedy created by Greg Daniels (The Office) and Steve Carrell, which stars Carell, John Malkovich and Lisa Kudrow.

Also coming in this quarter is Hollywood, which was created by Ryan Murphy, and large-scale action film Extraction, which stars Chris Hemsworth.

The company said that in Q3 it plans to include Enola Holmes on the platform, which stars Millie Bobby Brown, Helena Bonham Carter, Henry Cavill and Sam Claflin.

The company said: “While we’re certainly impacted by the global production pause, we expect to continue to be able to provide a terrific variety of new titles throughout 2020 and 2021.”

Kelly Earley is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com