Netflix Inc. has come back down to earth after stratospheric gains during the opening months of the COVID-19 pandemic.
The streaming giant on Tuesday reported 3.98 million net new paid subscribers in the first quarter, 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
expects just 1 million net new streaming customers, which would be the lowest total on record for the company. The lowest quarterly net gain for streaming subscribers currently is 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 sent shares of Netflix down 11% in after-hours trading, with prices dipping below $500.
A drop-off seemed inevitable after a national lockdown for more than a year shuttered consumers at home, where they went to streaming services in droves for entertainment. Netflix reported an annual net gain of 36.6 million subscribers to 203.7 million last year, which executives noted when discussing the latest results.
“We believe paid membership growth slowed due to the big COVID-19 pull-forward in 2020 and a lighter content slate in the first half of this year, due to COVID-19 production delays,” Netflix executives wrote in a letter to shareholders, summarizing the disappointing first-quarter performance.
“In the short-term, there is some uncertainty from COVID-19; in the long-term, the rise of streaming to replace linear TV around the world is the clear trend in entertainment,” the letter said.
While fewer new subscribers signed on, Netflix made more money from increased subscription prices. Netflix said it earned $1.7 billion, or $3.75 a share, against expectations of $2.98 a share, according to analysts polled by FactSet. Netflix’s revenue soared 24.2% to $7.16 billion, beating estimates of $7.14 billion.
With more than 200 million subscribers, the trick now is how to hold on to them, and monetize them. One clear way is to raise subscription fees, as Netflix did in the U.S. and Canada in February; another is to crack down on shared accounts to squeeze out more memberships per household.
For investors, Netflix promised $5 billion in share repurchases beginning this year. The company has not repurchased any stock since the end of 2011, according to FactSet records.
Netflix has more than held its own in a streaming market that includes rivals Walt Disney Co.
and AT&T Inc.
But with millions of Americans getting vaccinated for COVID-19 and the economy opening up, the question remains whether people continue to get their entertainment at home or venture to vacation spots, movie theaters, restaurants and sporting venues.
“Combined with easing lockdown restrictions, Netflix may face increasingly strong headwinds in the next few quarters as consumers shy away from their devices in favor of the outdoors,” analyst Peter Hanks of news and research site DailyFX.com warns.
The Silicon Valley streaming giant says it intends to spend more than $17 billion in cash on content this year, and it expects paid membership growth will “re-accelerate” in the second half of 2021 as it ramps up a slate of popular programming such as “Sex Education,” “The Witcher,” “La Casa de Papel” (aka “Money Heist”), and “You.” It is also readying movies like “Red Notice,” starring Gal Gadot, Dwayne Johnson and Ryan Reynolds, and “Don’t Look Up,” with 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
has gained 10% in 2021.