Tuesday, Apr 21st 2020

Netflix Q1 Earnings: New subscriptions nearly 2x forecasts


On Tuesday after hours, Netflix reported adding 15.8 million new subscriptions in Q1 - a blowout figure that was nearly double what Wall Street analysts had been expecting (8.2 million).

This accelerated Netflix's global subscriber growth rate to 23% year-over-year, up from 20% in the prior quarter.

This outperformance of course is primarily due to increased sheltering at home as countries around the world combat the spread of COVID-19.

While we do believe current conditions have catalyzed some durable subscription additions that otherwise might not have been experienced, we also believe that a meaningful portion of the outsized outperformance represented "pull-forward" of future demand.

In other words, the delta is likely in large part attributable to timing - that is, to subscribers who would have likely signed up later, but instead signed up today due to present conditions.

Despite the large uptick in subscribers, earnings per share for Q1 came in slightly below expectations.

We believe this was largely due to foreign exchange movements and costs associated with the company's COVID-19 response plans.

To date, Netflix has reportedly committed $150 million to address hardship in the media and entertainment industries, including setting up dozens of relief funds in countries that don't already have them set up.

On an adjusted basis, we believe earnings would have been meaningfully higher.

In fact, management's forecasts for Q2 earnings came in 17% above than investor forecasts, or roughly 3x what the company earned in the same quarter last year.

While given the uncertain macro outlook, we would take all forward guidance with a heavy grain of salt, we were pleased with Netflix's performance in the quarter and look forward to gaining more color later this year on the net durability of the subscription adds seen in Q1.

As of this writing, NFLX was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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