Netflix's (NFLX 0.91%) strong growth persisted in Q1, with revenue, net income, and members rising by double-digit year-over-year percentages. Growth in paid members was particularly impressive, as the company added nearly 10 million subscribers in a single quarter.
"For 20 years, we've had the same strategy: when we please our members, they watch more and we grow more," the company said in its first-quarter shareholder letter.
Image source: Netflix.
Strong subscriber growth
Netflix added 9.6 million paid net members during Q1 -- 16% more than the company added in the year-ago quarter. This brought total paying members to 148.9 million, up 25.2% year over year from 118.9 million.
Record net paid member additions were expected during the quarter, as the company has been consistently adding more members than in year-ago periods recently. In addition, Netflix's first-quarter growth in paid members benefits from droves of customers who sign up via free trials during the holiday season.
But this rise in paid members was sharper than expected. Management had guided for 8.9 million paid net adds during the quarter. Analysts, too, were expecting paid net adds during the quarter to come in at about 8.9 million. Actual subscriber additions, therefore, were 700,000 higher than expected.
Momentum in member growth has benefited from the company's aggressive efforts to roll out increasingly more quality content. In Q4, Netflix notably debuted blockbuster hit Bird Box, which was watched by an estimated 80 million member households in the first four weeks of availability. In Q1, some hits that were launched included series Umbrella Academy and the film Triple Frontier, which stars Ben Affleck and is directed by J.C. Chandor.
Of course, Netflix's commitment to constantly developing new original content continues to weigh on its finances. Free cash flow was negative $450 million during the quarter, and management is guiding for negative $3.5 billion in free cash flow for the full year.
Netflix's first-quarter revenue and net income, however, increased nicely. Revenue was up 22.2% year over year and net income climbed 18.6% to $344 million.
Netflix isn't sweating new competition
The timing of Netflix's first-quarter update follows recent news of Apple's (AAPL +2.08%) and Walt Disney's (DIS 0.68%) plans to make a splash in Netflix's territory with their own video-streaming services. The two companies are set to launch new streaming platforms later this year. While Apple hasn't given a specific date, Disney's new Disney+ will launch in the U.S. on Nov. 12 at a competitive monthly price of $6.99.
Netflix doesn't seem worried.
"We don't anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings," Netflix said in its first-quarter update.
Backing up its point, Netflix noted that its streaming hours in the U.S. only account for about 10% of total TV usage. "We are much smaller and have even more room to grow in other countries and on other devices like mobile," the company added. "For instance, Sandvine estimates our share of global downstream mobile internet traffic is about 2%."
