COVID-19 Helps Bump Up Netflix Q1 Subscribers

Home confinement during pandemic drives growth, but company expects slowdown when shelter-in-place orders lift
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Netflix added about 15.7 million global subscribers in Q1, spurred mainly by shelter-in-place orders during the COVID-19 pandemic, but the company expects a slowdown in Q2 as more and more consumers are allowed to leave their residences.

Netflix ended Q1 with 182.9 million global customers, an increase of 23% or about 15.7 million subscribers. In the U.S. and Canada, Netflix added about 2.3 million subscribers in Q1, ending the period with 69.97 million customers.

That helped drive global revenue up 28% to $5.8 billion and pushed free cash flow into positive territory -- $161.6 million in the period compared to a negative $1.7 billion in Q4 -- driven mainly by lower production costs. Nearly all filming on Netflix productions has been stopped because of COVID-19. The company said it has created a $100 million fund to help workers on its productions and has donated another $30 million to third parties and non-profits for emergency relief for out-of-work crew and cast across the broader TV and film industries in areas where it has a large production presence.

The subscriber growth was spurred by the COVID-19 pandemic, which has forced millions of people worldwide to work and play from home. The resulting shelter-in-place orders have spiked TV and streaming content viewing across the board, and Netflix was no different. But Netflix added that as those orders are lifted, it expects growth to subside.

“We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon,” Netflix said in a letter to shareholders.

Netflix forecast about 7.5 million customer additions in Q2, but added that “given the uncertainty on home confinement timing, this is mostly guesswork.”

Subscriber growth could be higher or lower, depending on when people are allowed to leave their homes and whether they will want to take a break from TV afterward.

“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,” Netflix said in the letter. “Intuitively, the person who didn’t join Netflix during the entire confinement is not likely to join soon after the confinement.”

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