Netflix’s development within the third quarter cooled significantly after its blockbuster COVID-fueled bump within the first half of 2020.
The corporate netted 2.2 million subscribers within the third quarter of 2020 — beneath Wall Avenue’s expectations and beneath the Netflix’s personal earlier forecast. The streaming large additionally posted web earnings beneath analyst consensus estimates. Shares had been down 6% in after-hours buying and selling.
The corporate had beforehand forecast including 2.5 million paid streaming clients within the third quarter, after report web provides of 10.1 million in Q2 and 15.eight million in Q1 this yr — a large raise Netflix attributed to stay-at-home orders amid the coronavirus disaster. That subscriber “pull ahead” within the first half of 2020 led the corporate to forecast decrease web provides within the again half of the yr.
Netflix reiterated that time in its Q3 letter to shareholders, saying it missed the subscriber forecast for the September quarter “primarily as a result of our report first half outcomes and the pull-forward impact we described in our April and July letters… In these difficult instances, we’re devoted to serving our members.”
Netflix posted income of $6.44 billion (up 22.7%) and earnings of $1.74 per share (versus $1.47 within the year-ago interval). Wall Avenue analysts on common anticipated third-quarter gross sales of $6.38 billion and EPS of $2.13.
As of Sept. 30, Netflix reported 195.15 million paid streaming clients worldwide, up 23.three% yr over yr. Subscriber development was notably down in Latin America, the place Netflix added 260,000 subscribers in the latest quarter (vs. 1.49 million within the year-prior interval).
For This fall, Netflix forecast 6 million paid web provides — versus eight.eight million within the yr prior. If it hits that quantity, that may put the corporate at a report 34 million paid web provides for 2020, effectively above its prior annual high-water mark of 28.6 million in 2018.
In 2021, as “the world hopefully recovers” from the pandemic, Netflix expects its subscriber development to return to pre-COVID ranges. “We proceed to view quarter-to-quarter fluctuations in paid web provides as not that significant within the context of the long-run adoption of web leisure, which we imagine continues to be early and will present us with a few years of robust future development as we proceed to enhance our service,” Netflix mentioned within the shareholder letter.
Netflix mentioned it nonetheless expects to launch extra originals in every quarter of 2021 than this yr, even with COVID manufacturing suspensions. “[W]e’re assured that we’ll have an thrilling vary of programming for our members, significantly relative to different leisure service choices,” the corporate advised shareholders.
The corporate mentioned it’s making “good and cautious progress returning to manufacturing.”
Netflix mentioned it has restarted manufacturing on originals together with “Stranger Issues” Season four, motion movie “Pink Discover” starring Dwayne Johnson, Gal Gadot and Ryan Reynolds, and “The Witcher” Season 2. Since mid-March, based on the corporate, it has already accomplished principal images on greater than 50 productions and “we’re optimistic we’ll full capturing on over 150 different productions by year-end.”
As has been its apply, Netflix additionally launched self-reported viewing metrics for its largest releases within the quarter. Main the pack was Charlize Theron-starrer “The Outdated Guard,” the most well-liked title in Q3, garnering 78 million subscriber households viewing the action-thriller film within the first 4 weeks of launch. The caveat: Netflix tallies views based mostly on each account that watches a given title for a minimum of two minutes, reasonably than reporting average-minute viewers as is the TV trade’s commonplace.
Netflix famous that its free money circulation was optimistic for a 3rd consecutive quarter, coming in at $1.1 billion (versus -$551 million in Q3 of 2019). That’s largely as a result of productions have been halted over COVID, pushing out its money spending on authentic content material.
As productions restart, the corporate tasks FCF within the fourth quarter to be barely unfavourable, with free money circulation for the full-year 2020 to be roughly $2 billion (up from its prior expectation of break-even to optimistic). For 2021, Netflix is forecasting free money circulation to be between -$1 billion and break-even.