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Netflix Subscribers Soar -- Here's What Investors Should Know

By Daniel Sparks – Apr 22, 2020 at 7:36AM

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As consumers sheltered at home in March, millions signed up for Netflix.

Netflix (NFLX 7.23%) added more new paid members during the first quarter of 2020 than it has added in any quarter yet. The catalyst for this spike in paid members, of course, was lockdown orders issued in many countries across the world in March. With more consumers confined at home, this led to "temporarily higher viewing and increased membership growth," management said in its first-quarter update.

Here's a closer look at Netflix's uncanny first-quarter member growth and other highlights from the company's earnings release.

A woman watching a movie on her laptop

Image source: Getty Images.

15.8 million new paid members

Netflix added a whopping 15.8 million new paid members during Q1, crushing its guidance for 7 million new members. The significance of this outperformance is startling given that lockdown orders only impacted a few weeks of the period.

In the company's first-quarter shareholder letter, management confirmed that consumers sheltering at home was the primary driver of this upside in subscriber growth.

During the first two months of Q1, our membership growth was similar to the prior two years ... Then, with lockdown orders in many countries starting in March, many more households joined Netflix to enjoy entertainment.

In-line revenue

Since the onboarding of these new customers happened toward the end of the quarter, this spike in member growth won't have a full impact on quarterly revenue until Q2. This is one reason why Netflix's first-quarter revenue of $5.77 billion was only slightly ahead of management's guidance for $5.73 billion, despite such significant outperformance on paid member additions during the period. A sharply strong dollar relative to other currencies also negatively impacted total reported revenue as it depressed the company's international revenue.

Uncertainty ahead

Given how unprecedented these times are, management was careful to exercise caution in any forward-looking commentary.

The company guided for 7.5 million new paid member additions during Q2. While this is up significantly from the 2.7 million members the company added in the second quarter of 2019, it's probably conservative in light of a likely tailwind to member growth during the first few weeks of Q2 since stay-at-home orders were still largely in place in many countries. Management, however, noted that uncertainty surrounding the timing home confinement means that this forecast is "mostly guesswork." Actual reported paid member additions could be "well below or well above" this figure. Where net paid member additions for the period actually fall, therefore, is highly dependent on "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," management explained.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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