Netflix 1Q - Surge In New Subscribers

Netflix reported its first quarter earnings, showing a record jump in global paid subscriber additions of 15.77 million. The company was only expecting 8.2 million. This massive surge in new subscriptions was due to people staying at home and seeking entertainment as the coronavirus was starting to disrupt daily life around the planet.

The streaming giant reported revenues of $5.77 billion, $709 million in profits and $162 million in positive cash-flow (they are cash-flow positive for the first time since 2014). Reed Hasting always said that Netflix's biggest competition was sleep, well it seems he forgot to mention restaurants, clubs, gyms, cinemas, and all the other ways people entertain themselves.

Netflix's total subscriber numbers grew to 182.8 million as it added 2.3 million in its largest market of North America. 13.5 million were added internationally. Time spent on the platform also increased dramatically. Twenty-nine million households watched the third season of Ozark, 30 million watched Love is Blind, and over 64 million households watched the popular documentary series about a big cat breeder in Oklahoma named Joe Exotic titled, Tiger King.

The biggest knock for Hollywood companies was having to stop production on sets across the planet due to the Covid-19 pandemic. This has forced the likes of Disney, Warner Bros., Sony, Paramount, Universal, and others to cancel or delay releases of their big blockbusters and to try find alternative solutions such as making those films streaming exclusives. Netflix created a $150 million fund to pay staff during this tough period.

Ted Sarandos, the CTO said that most of the 2020 slate of films and series was largely shot, and they were already deep into making 2021 content. As a result they don't expect to move the released schedule around much this year. This means the streaming giant has a lot of content ready to go, as compared to its competition, thanks to their ability to shoot full seasons far in advance.

Since all cinemas are closed and consumer behaviour changed to their favour; Netflix finds itself dominating the movie industry in 2020 as they do not need the National Association of Theatre Owners (NATO) for new releases. Their new movie releases come straight to homes to an audience of 182.8 million households. Netflix is open to the idea of helping competition offload new movies on its platform as 'NATO' becomes redundant.

The uncertainty around the restart of physical production still poses a big risk for Netflix in the short-term and we don't know if this pandemic will extend beyond 2020. The company said that it has learnt a lot from its sets in South Korea and Iceland and will use those resources across its other productions when lockdown is lifted across the globe. The Netflix share price has shown a lot of resilience. The question now is how many of the new subscribers will stick.

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