Netflix Inc. is back on Earth after stratospheric gains during the early months of the COVID-19 pandemic.
The streaming giant reported 3.98 million net new paid subscribers in the first quarter on Tuesday, down from 8.5 million reported in the previous quarter and well below the 6 million the company predicted three months ago.
For the current quarter, Netflix
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expects just 1 million net new streaming customers, the lowest number ever recorded for the company. The lowest net profit for streaming subscribers is currently just over 1 million in the second quarter of 2013, according to FactSet records.
Analysts had expected 6.34 million new subscribers in the first quarter and 4.2 million in the second quarter, according to FactSet. The news caused Netflix’s shares of after-hours trading to drop 11%, with prices dropping below $ 500.
A drop-off seemed inevitable after a national lockdown for over a year shut down consumers at home, where they flocked to streaming services for entertainment. Netflix reported annual net profit of 36.6 million subscribers to 203.7 million last year, which executives noted when discussing the latest results.
“We believe that paid membership growth has slowed due to the large COVID-19 pull-forward in 2020 and a lighter content slate in the first half of this year due to production delays at COVID-19 Netflix executives wrote in a letter to shareholders, summarizing the disappointing performance in the first quarter.
“There is some uncertainty about COVID-19 in the short term; In the long run, the emergence of streaming to replace linear TV around the world is the clear trend in entertainment, ”the letter said.
While fewer new subscribers signed up, Netflix made more from higher subscription prices. Netflix said it made $ 1.7 billion or $ 3.75 per share, against expectations of $ 2.98 per share, according to FactSet analysts. Netflix revenues were up 24.2% to $ 7.16 billion, exceeding estimates of $ 7.14 billion.
With over 200 million subscribers, the trick now is to keep them and make money from them. One clear way is to increase subscription costs, as Netflix did in February in the US and Canada; another is tackling shared accounts to squeeze out more memberships per household.
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For investors, Netflix pledged $ 5 billion in share buybacks early this year. According to data from FactSet, the company has not repurchased shares since late 2011.
Netflix has more than held its own in a streaming market with rivals Walt Disney Co.
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Apple inc.
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Comcast Corp.
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From Amazon.com Inc.
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and AT&T Inc.
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But as millions of Americans are being vaccinated against COVID-19 and the economy is opening up, the question remains whether people will continue to get their entertainment at home or venture to vacation destinations, movie theaters, restaurants and sports venues.
“Combined with the easing of lockdown restrictions, Netflix could face increasing headwinds in the coming quarters as consumers prefer to avoid their devices,” warns analyst Peter Hanks of news and research site DailyFX.com.
The Silicon Valley streaming giant says it plans to spend more than $ 17 billion in cash on content this year, and expects paid membership growth to accelerate again in the second half of 2021 as it builds on a string of popular shows. such as ‘Sex Education’, ‘The Witcher’, ‘La Casa de Papel’ (aka ‘Money Heist’) and ‘You’. It is also preparing films like “Red Notice”, starring Gal Gadot, Dwayne Johnson and Ryan Reynolds, and “Don’t Look Up,” starring Leonardo DiCaprio, Jennifer Lawrence, Cate Blanchett, Timothée Chalamet and Meryl Streep.
Netflix shares are up 1.6% so far this year, while the broader S&P 500 index
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has increased 10% in 2021.