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Netflix earnings: Huge lockdown subscriber bump

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  • Q1 revenue: $5.77B (+27.6% YoY, +5.5% QoQ, vs. $5.74B expected)
  • Q1 earnings: $709M (+106.1% YoY, +20.8% QoQ)
  • Q2 guidance: Netflix forecasts $6 billion revenue and $820 million earnings for Q2 of 2020.

The big number: Driven by stay-at-home orders around the world, Netflix saw its number of subscribers surge by 15.8 million, as opposed to the 7 million the company had forecast, to a total of 182.82 million. Most of those subscribers joined in March, meaning that the company won't fully see an impact on its revenue until Q2 of 2020.

People are talking: "It's a bunch of us feeling the wind." CEO Reed Hastings was frank during the company's Tuesday afternoon earnings call that any forecast on COVID-19's impact on the business is just guesswork at this point. "In a couple of months, we'll be able to grapple with the long-term implications," he said. For now, the company was just focused on keeping the service up and running. "Our small contribution to these difficult times is to make the home environment a little more bearable," Hastings said.

Opportunities: Netflix clearly benefited from people staying at home. As a result, Netflix had to tweak its streaming tech to save bandwidth in some markets and hire 2,000 additional customer service agents to deal with increased demand. However, executives cautioned that some of this growth may just be front-loaded, possibly resulting in softer growth numbers later this year. Or as the company put it in its letter to shareholders: "Intuitively, the person who didn't join Netflix during the entire confinement is not likely to join soon after the confinement."

Threats: Netflix's numbers were affected by a strengthening dollar, putting a ding on international revenue, which has been the company's biggest growth driver. Beyond that, the company is starting to see an impact of productions shutting down across the world. It still plans to go ahead with its release plans for Q2 and Q3, but had to stop dubbing content in Italian, and a closer look at the numbers reveals further trouble ahead: Netflix now expects to spend $1.5 billion less on content production this year than it had previously planned.

The power struggle: Asked about competitors, Hastings singled out Disney+ for a level of execution he hadn't seen from other competitors ever since Netflix's founding. "It's stunning," Hastings said. "My hat is off to them." At the same time, he reiterated a long-held belief that Netflix is competing not just against other subscription services, but also YouTube, gaming and more, and that this competition is not a zero-sum game. "No one is gonna get it all," he said. "It's working out very well for us."

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