LOS GATOS, Calif. – With so much of the world staying home to try and limit the spread of the Covid-19 virus, and of course watching and re-watching movies and TV shows, many expected big numbers from Netflix today as it reported its fiscal 2020 first quarter results, and the company did not disappoint.
Revenue shot up almost 28% to US$5.77 billion for the three months ended March 31 and subscribers jumped by 15.8 million in the quarter to nearly 183 million. As a comparison, the company added 8.7 million subs in Q4 2019 and 9.6 million in Q1 2019. It added 2.3 million subscribers in the U.S. and Canada alone in Q2 2020, more than four times the number of additions in Q4 2019 and 23% more than the growth in subs in Q1 2019.
It also added 7 million subscribers in the Europe, Middle East, and Africa (EMEA) region from January-March and more than doubled its Asia-Pacific (APAC) regional subscribers to more than 3.6 million.
Costs have declined due to the shutdown of original content production almost everywhere and a halving of the company’s marketing expenses, so Netflix’s operating income (US$958 million) and net income ($US$709 million) in the quarter both more than doubled the 2019 Q1 results.
“In our 20+ year history, we have never seen a future more uncertain or unsettling,” reads the letter to shareholders released this afternoon. “The coronavirus has reached every corner of the world and, 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 letter noted the company offers a service which people love and are using a lot as they are staying home. “Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth,” reads the letter.
It also said Ozark season three shows “a projected 29 million member households will have chosen to watch this season in its first four weeks,” adding viewer numbers of Tiger King: Murder, Mayhem and Madness (64 million), Love is Blind (30 million), original film Spenser Confidential (85 million), and season four of the Spanish language hit La Casa de Papel, a.k.a. Money Heist (a projected 65 million), reads the letter.
It also cautioned, “we expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon.”
“Our internal forecast and guidance is for 7.5 million global paid net additions in Q2,” however, “given the uncertainty on home confinement timing, this is mostly guesswork.
“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. Some of the lockdown growth will turn out to be pull-forward from the multi-year organic growth trend, resulting in slower growth after the lockdown is lifted country-by-country.
“Intuitively, the person who didn’t join Netflix during the entire confinement is not likely to join soon after the confinement,” reads the letter.
The company noted it has shifted as many employees as possible to work from home and it has set aside new product innovations as it concentrates on keeping the service robust and operating “while continuing to release features that we know will add meaningful value for our members, such as improved parental controls,” reads the letter.
On the customer support side, which Netflix admitted it has felt some strain, “we’ve taken on another 2,000 agents (all working remotely), so our customer service levels are almost fully restored despite the increased demand,” says the letter.
However, content production has ceased worldwide, with the exception of a few countries like Korea and Iceland.
While noting on the post production side it has been able to get more than 200 projects going remotely, that series writers’ rooms are operating virtually, it has been able create dubs in Italian and other languages and that with the help of guilds around the world, voice actors can be set up from home, and similar efforts are underway for both music and visual effects, the company acknowledged the widespread production shutdowns have been very hard on most workers in the business – and the letter highlighted its recently announced fund to help ease those hard times.
“We will have paid these crews for about seven weeks, with the goal of providing a bridge until government safety nets kick in,” reads the release. The company has also donated an additional $50 million in other aid.
“No one knows how long it will be until we can safely restart physical production in various countries, and, once we can, what international travel will be possible, and how negotiations for various resources (e.g., talent, stages, and post-production) will play out,” adds the letter.
“The impact on us is less cash spending this year as some content projects are pushed out. We are working hard to complete the content we know our members want and we’re complementing this effort with additional licensed films and series.”
The company said it is on plan for its Q2 releases, except for some language dubbing which will be late on some titles and that it has made a few high profile purchases such as Paramount’s and Media Rights Capital’s The Lovebirds, a comedy starring Issa Rae and Kumail Nanjiani, for Q2 and Legendary Pictures’ Enola Holmes starring Millie Bobby Brown, Helena Bonham Carter, Henry Cavill, and Sam Claflin for Q3.
