(Bloomberg) – Netflix Inc. credited the pandemic with a record increase in 2020. It now blames the pandemic for the worst first quarter in eight years.
The streaming service added far fewer new customers than Wall Street expected in the first three months of 2021, lacking even its own forecasts of millions of subscribers. And the current quarter will be more challenging, Netflix said on Tuesday, forecasting a gain of just 1 million new customers – or a fraction of the 4.44 million projected by analysts. The disgusting increase caused the shares to fall to 13%.
Netflix has been warning for months that growth will slow after customers come out of hibernation Covid-19, but few expected the company to stop so dramatically. The first quarter of 2020 was the strongest in its history, with 15.8 million new customers, and the pace of Netflix was still fast in the fourth quarter.
“I had those 10 years of growing up as smooth as silk,” Reed Hastings, chief executive and co-executive, said in a webcast for investors. “It’s a little shaky 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 of a year in 2013, when Netflix added about 3 million customers. If the company’s forecast for the current quarter is maintained, it will be the worst three-month period for Netflix since the beginning of its streaming service.
Netflix blamed the “Covid-19 pull-forward” effect, which means that the pandemic accelerated its growth in 2020, while everyone was stuck at home and needed something to watch. Now, this growth affects the company’s results in 2021.
“It really boils down to Covid,” Spencer Neumann, the company’s chief financial officer, said on the webcast.
The lack of new shows also contributed to the crisis, the company said. Although there were popular hits available, such as “Bridgerton” and “Cobra Kai”, the fresh releases were unleashed after mid-January and the growth slowed.
Snags production
The pandemic pushed the release of many key company titles in the back half of this year. Production was discontinued in 2020 due to the consequences of the pandemic. Netflix has managed to support its launch schedule for the first few months of Covid blocking, as it has already completed many projects. But most of the movies and shows that were supposed to be filmed last year were either postponed or canceled.
“There was nothing to follow this quarter,” said Michael Nathanson, an analyst at Moffett Nathanson LLC.
Netflix rejected the idea that the competition took its results into account, noting that its growth has slowed globally – not just in the US streaming market. Disney +, HBO Max and Peacock do not yet compete with Netflix in many parts of the world. However, the company faces more rivals than ever before, and some of the services are less expensive than Netflix, which raised US prices in October. While production has resumed in every country except Brazil and India, this will not help Netflix until later. this year. Its slate in the current quarter is also light.
Better shape
The company’s response to the challenges remains the same as ever: 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 investment in programming outside the United States, where most of its newcomers live. customers.
Europe continues to be a bright spot for Netflix. The streaming service added 1.81 million customers across Europe, the Middle East and Africa, making it the leading region for the company. “Lupine”, a French thriller, was the most popular new series this quarter. Asia is the second fastest growing region of the company.
Even with decelerated 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 a free cash flow of $ 692 million during the quarter. While some of these are due to production edges, they also reflect a stronger base. The streaming service is profitable in many new markets, such as South Korea. Earnings were $ 3.75 per share last quarter, ahead of an estimate of $ 2.98.
Redemption of shares
After years of lending to finance production, Netflix has said it no longer needs to raise external funding to fund day-to-day operations. The company plans to reduce debt and will buy shares of up to $ 5 billion.
Neither executives nor investors can be sure whether the trajectory of the first half of the year is temporary or is a sign of a mature business. Netflix fell as much as 13% to $ 480 in extended trading, which would be a low in 2021. The stock rose 1.6% this year to Tuesday in New York.
When asked if it was time for the company to expand into a new business, executives insisted that there was a lot of growth in entertainment. But they teased two potential areas of expansion in the coming years: consumer products and video games.
In any case, the main focus will be on the broadcast of several successful shows, said co-CEO and head of content Ted Sarandos.
“What we need to do, week in and week out, is offer the programming of love to our members,” he said.
(Updates with the company’s commentary starting with the fourth paragraph. A 2013 subscriber figure has been corrected in an earlier version of this story.)
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