Netflix’s report for the first three months of 2021 disappointed with a larger-than-expected drop in new users. The company promises a recovery in the second half of the year, but analysts doubt a return to pre-pandemic growth rates will take place. Here’s what Netflix investors need to know.
The plunge in Netflix (NFLX) stock after its first quarter report erased all of its gains since early 2021 as investors were frustrated by the streaming giant’s very low number of added paid subscribers.
And although Netflix’s management warned investors that the decline would take place due to temporary factors in the form of the COVID-19 pandemic and the shutdown of film production, it turned out to be stronger than expected. While Netflix predicted to increase its paid subscriber base by 6 million, only 3.98 million were added – a stark contrast to the addition of 15.77 million in the first quarter of 2020 when the pandemic hit.
At the same time, analysts point to several circumstances.
If we do not take into account the contrasting comparison of the first quarter of 2021 and the first quarter of 2020, and compare the current results with the level before the pandemic – with the seasonally similar first quarter of 2019 (i.e. exactly two years ago) – we will get a drop of more more than doubled: 3.98 million versus 9.6 million paid Netflix subscribers.
The conditions of the COVID-19 pandemic have benefited all kinds of streaming services, but these conditions are non-standard and temporary, as well as the suspension of filmmaking, to which, in part, Netflix’s management explained the decline in the number of its new paid subscribers and promised a recovery in the second half of the year.
Investors should keep in mind that the periodic seasonal, sometimes dramatic slowdown in the rate of adding new users on the Netflix platform is the norm for the company from the beginning of 2018 to 2020 and the beginning of the pandemic. Marketinfo.pro provides analytics on Netflix quarterly reports and news from Q1 2018:
In Q1 2018, $ 7.41 million was added.
2nd quarter decline to 5.15 million
3rd quarter growth to 6.96 million
Q4 2018 high update to 8.84 million
Q1 2019 – new high of 9.6 million
2nd: a sharp drop to 2.96 million
3rd: 6.77 million
Q4 2019: US $ 8.76M
1st quarter of 2020 – record 15.77 million
2nd: 10.09 million
3rd: 2.2 million
4th quarter 2020 $ 8.5 million
Will Netflix’s subscriber base grow in 2021?
Most analysts agree that Netflix investors should prepare for a challenging year. The next financial report for the second quarter is seasonally weak and is likely to show the numbers even worse. Management expects Netflix to add just 1 million new paying users this quarter, up from 10.09 million a year ago and 2.97 million a year earlier.
Netflix user growth in the second half of 2021 could also be lower than the 2019 level, as the completion of the lockdown in key markets will provoke an outflow of viewers from online to offline entertainment.
Plus, investors should keep in mind that the numbers above are the number of global Netflix users added. In recent years, the company has achieved growth largely thanks to international expansion, and mature markets such as the United States, Canada, and partly Europe showed weak growth back in 2019.
The EMEA (Europe, Middle East and Africa) region has been the largest contributor to Netflix’s recent growth, with new pandemic outbreaks in many European countries imposing new restrictions in late 2020 / early 2021. As Europe reopens over the next few quarters, growth in this key region could slow sharply.
Netflix remains to rely on growth in India, where the COVID-19 pandemic is still raging and where the company is actively growing. For more details, see “Netflix’s Future Growth Will Come From India and Other Major Asian Markets.”
Netflix shows profits and this is above all!
Although Netflix disappointed with the number of added users in the first quarter of this year, the company’s report showed revenue growth to $ 1.71 billion, more than double the $ 709 million figure in the first quarter of 2020, when it recorded a record addition. 15.77 million global users.
Netflix’s earnings statistics also paint a nice graph, thanks in large part to the periodic increases in subscription prices.
It follows that investors need to rethink their criteria for evaluating Netflix’s quarterly results, shifting the focus from new users to revenue growth, profit margins and free cash flow, which reflects the balance of funds for potential investments. Netflix’s quarterly earnings and earnings statistics for the last 2 years are available here.
Some analysts predict that the saturation of markets in the US, Canada and Europe will cut Netflix’s annual subscriber growth from around 20% before the pandemic to around 10% over the next few years, but that shouldn’t scare attentive investors.