Netflix (NASDAQ:NFLX) blew past expectations for its first-quarter paid net subscriber additions. That's a result of the current COVID-19 outbreak and the huge increase in the number of people who are mostly housebound and looking for at-home entertainment.

Blowout quarter

Netflix gained 15.8 million net new subscribers during the the first quarter, crushing management's prior guidance of 7 million. The company had 183 million global paid streaming memberships as of the end of March. Management's guidance calls for the addition of another 7.5 million in the second quarter, which would bring the total subscriber count to over 190 million.

The cast of Netflix's Stranger Things.

Image source: Netflix.

As good as it gets?

Many analysts think this demand surge is "as good as it gets" for Netflix. Stifel's Scott Devitt wrote, "While the timing of a potential return to normalcy remains unknown, we expect some form of trend reversal to materialize as lockdowns are lifted and a portion of recent demand proves to have been pulled forward."

Evercore ISI's Lee Horowitz wrote, "As good as [first-half] trends appear to be for the company in the midst of the coronavirus pandemic, a slightly more cautious tone was indicated for the back half of the year, as some COVID-related pull-forward begins to bleed off and as tougher content compares potentially weigh on [second-half] growth."

These thoughts are not out of left field. Netflix's management wrote in the first-quarter shareholder letter that some of the extraordinary subscriber gains "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," and that "the person who didn't join Netflix during the entire confinement is not likely to join soon after the confinement." That's partially why management expects the third and fourth quarters of this year to have lower net subscriber additions than the same quarters last year.

Naturally, those cautious comments from management gave many observers pause about the sustainability of the subscriber surge.

Still the first inning

While Netflix will probably show less impressive subscriber growth in the second half of the year than in the first, focusing on this is missing the forest for the trees. Subscriber growth in the third quarter and fourth quarter -- whatever they end up being -- matters far less than the growth in the next decade or two.

Netflix is still scratching the surface of its long-term opportunity. There are roughly 1.7 billion global households, excluding China, where Netflix doesn't operate. But the world's population and household formation continues to grow. In a couple of decades, there could be closer to 2.1 billion global households, assuming the population grows at a 0.9% annual rate and household sizes remain constant.

Given the growth of internet connectivity globally, it's likely that the vast majority of those households will have broadband or other high-speed internet access. If 85% of households are "connected" by then, there would be over 1.7 billion global connected households who would have the ability to stream Netflix if they so desire. That's over nine times the current 183 million strong subscriber base.

But will they want Netflix? Well, prior to the coronavirus-related production disruptions, Netflix was on track to spend over $15 billion of cash on content this year. Even if it remains flat at that level in future years (though it could continue to increase), Netflix would spend $300 billion on content over the next 20 years.

And management's strategy is to make content that appeals to everyone. On the first-quarter conference call, Chief Content Officer Ted Sarandos said the company's objective is to "make your favorite show." He elaborated on that point in this way:

For some people, that's high -- that's big pedigree drama. And for other people, that's home improvement shows. And we want to make your favorite version of that. So we've been pushing out into each of those verticals beyond the true crime space and the competition space. We've done cooking shows like with Nailed It! and Chef's Table, and we're now pushing into more of the kind of into the home improvement and real estate space, which is also quite popular with our members, and continue to push out that as well.

And he wasn't talking just about the U.S. Netflix wants to create everyone in the world's favorite show. Sarandos commented that "if your house is anything like mine, then it is not the same show for any two people, let alone the whole world."

As Netflix spends hundreds of billions of dollars on new content over the next two decades, the vast majority of it on original content that it has perpetual rights to, we are going to see the company increasingly fill in all the content gaps. It's likely to have a massive fire hose of compelling new content targeted at virtually every interest group around the world. That's why Netflix's CFO Spencer Neumann earlier this year said, "[W]hether it's pay-TV or broadband households, we don't see why we can't get into all of those households over time."

Considering that the production shutdown is unlikely to have a noticeable impact on new content releases onto the service, Netflix is in good shape. Investors should appreciate that the company's first-quarter growth rate may have been as good as it gets this year, but the company is still likely to be far bigger and more profitable in the years and decades to come.