MarketWatch First Take: Netflix doesn’t know what comes next after coronavirus-sparked boom in subscriptions

MarketWatch First Take: Netflix doesn’t know what comes next after coronavirus-sparked boom in subscriptions

22 Apr    Finance News

Netflix Inc. executives admitted Tuesday they have no idea what the future holds amid the COVID-19 pandemic, and any forecasts they make for the rest of the year are pure “guesswork.”

The streaming giant said Tuesday that it added nearly 16 million new subscribers in the first quarter, an unprecedented surge in growth, as millions of people around the globe are sheltering in place and signing up for Netflix NFLX, -0.83% for entertainment. But executives believe that the huge growth will taper off, forecasting 7.5 million paid net new subscribers in the second quarter.

“Given the uncertainty on home confinement timing, this is mostly guesswork,” they admitted in a letter to shareholders. “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.”

Netflix shares showed the effects of the uncertainty in after-hours trading Tuesday — after spiking more than 9% immediately after the massive subscriber growth was revealed, the price see-sawed and even went negative as investors read more details in the shareholder letter and listened to the analyst interview. The stock ultimately ended the extended session up 0.2%.

“We’re in the same uncertainty that everyone else is,” Chief Executive Reed Hastings said in Netflix’s video interview. “The things we are certain of is the internet is growing, it’s a bigger part of people’s lives, thankfully, and the people want entertainment.”

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Hastings noted that after the huge growth in the first quarter, when many cities started issuing shelter-in-place orders, new subscribers will slow.

“Our guess is that subs will be light in Q3 and Q4 relative to prior years because of that. But we don’t use the words ‘guess’ and ‘guesswork’ lightly. We use them because it’s a bunch of us feeling the wind.”

Each of the executives in the company’s video interview reiterated that same notion, and emphasized that their biggest priority right now is to make sure the service is working well with this big flux in subscribers. Netflix Chief Content Officer Ted Sarandos also discussed how Netflix is orchestrating its post-production remotely, so that new shows and films that have finished filming can be released as planned during the rest of 2020.

Most filming production has been shut down globally, but for the rest of 2020, Netflix will continue to roll out its shows and movies as planned. Season 4 of “The Crown” and the Glen Keane animated film “Over the Moon” are still planned for release during the fourth quarter. The shareholder letter also included the purchase of two movies that were set for theatrical release, “The Lovebirds,” and “Enola Holmes,” set for the third quarter.

Chief Financial Officer Spencer Neumann said that based on past behavior of consumers in previous recessions, they typically stay home more, an indication that Netflix should fare OK, but with the caveat, again, that no one really knows anything in this unprecedented time. He also said, in response to a question, that the company was not even considering price increases at this time.

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“Right now we’re really not thinking about — it’s not really time for us to be thinking about changes,” Neumann said.

The uncertainty may disappoint investors who have been looking to companies such as Netflix during the pandemic for some direction, and some sort of outlook. Amid the clouds and the guesswork, Netflix at least is able to assure consumers during these troubled times that it will continue to have a stream of new content, and that prices won’t go up. Investors may want more, but at least consumers got some guarantees for the rest of the year.

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