Netflix reported a better-than-expected increase of 15.77 million subscribers globally in the first quarter, with pandemic-bound viewers stuck at home with few better options but to stream video entertainment.
The performance more than doubled the SVOD service's pre-pandemic forecast of 7 million customer additions.
Netflix finished the first quarter with 182.9 million paid subscribers globally, up 22.8% from a year earlier. The company said it expects its subscriber count to more than 190 million in the second quarter.
In the U.S. and Canada, the number of paid memberships rose by 2.3 million to 69.97 million.
“[O]ur membership growth has temporarily accelerated due to home confinement,” Netflix said in its quarterly shareholder letter. The streaming company also said that “some cash spending on content will be delayed, improving our free cash flow, and some title releases will be delayed, typically by a quarter.”
The company’s first quarter earnings were up, but revenues were constrained by the strength of the dollars. The company’s cash-flow position improved because it couldn’t spend money on programming because the virus has shut down production.
“At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term. Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth,” the company said.
“Hopefully, progress against the virus will allow governments to lift the home confinement soon. As that happens, we expect viewing and growth to decline. Our internal forecast and guidance is for 7.5 million global paid net additions in Q2. Given the uncertainty on home confinement timing, this is mostly guesswork, the company said.
First quarter net income jumped to $709 million, or $1.57 a share, from $344 million, or 76 cents a share a year ago.
Revenue rose 27.6% to $5.768 billion.
The company’s profit margin rose to 16.6% from $10.2 %, but was below the company’s 18% forecast.
Netflix said free cash flow was $162 million, turning positive after negative cash flow of $1.67 billion in the fourth quarter and $460 million in first quarter 2019. The company said cash flow was positive because cash spending on programming slowed because of the shutdown of production due to the Coronavirus. The shutdown will result in the release of some titles being delayed. The company expects the delays to be about one quarter.
The company said it now expects negative cash flow of less than $1 billion this year, compared to the $2.5 billion to $3.3 billion it had been expecting. “However, there has been no material change to our overall time table to reach consistent annual positive FCF and we believe that 2019 will still represent the peak in our annual FCF deficit,” the company said.
Netflix said some of the subscriber growth it saw this quarter may result in slower growth in upcoming quarters as stay-at-home rules are relaxed globally.
“Intuitively, the person who didn’t join Netflix during the entire confinement is not likely to join soon after the confinement,” the company said.
Netflix said it was taking steps to bolster its customer support operations and lend a hand to the production community during the crisis.
“On the customer support side, we’ve now fixed most of our work-from-home challenges. In addition, we’ve taken on another 2,000 agents (all working remotely), so our customer service levels are almost fully restored despite the increased demand,” the company said.
"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 said.
In March the company created a $100 million fund to help workers on Netflix productions. It said crews are being paid for about seven weeks until government safety net payments kick in.
“In addition, we’re donating $30 million to third parties and non-profits, providing emergency relief to out-of-work crew and cast across the broader TV and film industry in countries where we have a large production base. This includes donations of $1 million each to the SAG-AFTRA Foundation COVID-19 Disaster Fund, the Motion Picture and Television Fund and the Actors Fund Emergency Assistance in the US, and $1 million between the AFC and Fondation des Artistes in Canada,” the company said.
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