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As the coronavirus pandemic spread in early spring, Netflix benefited. Shelter in place orders meant that people were staying at home, with few options for entertainment other than their televisions and devices.
But few predicted just how much of a lift Netflix would get. Before the company reported first quarter earnings in late April, Wall Street analysts scrambled to revise their subscriber growth estimates to reflect the pandemic’s effect on streaming. Most suspected Netflix would add about 7.5 million new subscribers; in fact, the company more than doubled that with nearly 16 million new additions for a total of 183 million.
Netflix’s second quarter, which the company will report on Thursday, will likely include coronavirus-fueled growth as well. The question is how much?
Netflix has said it expects 7.5 million global paid net additions this time. But the forecast came with a caveat by the company: “Given the uncertainty on home confinement timing, this is mostly guesswork.”
Analysts at Wedbush Securities forecast net subscriber additions of nearly 15 million, just short of the record-breaking quarter earlier this year,
“We expect significant upside to user growth driven by shelter-in-place and a solid slate of content releases,” Wedbush analysts Michael Pachter, Matthew Breda, and Nick McKay wrote in a research note. “We anticipate meaningful upside to subscriber additions and revenue, as shelter in place around the world has clearly driven streaming usage and viewership up.”
Analysts on average estimate that Netflix will report $6.08 billion in second quarter revenue, a nearly 24% increase year over year. They forecast earnings per share of $1.84, up from 60 cents a year earlier.
Thanks to the huge influx of subscribers, Netflix’s stock has been one of the best performers in the S&P 500 this year, with a 60% gain so far to $526.51 in mid-day trading Wednesday. The rise has propelled Netflix’s market cap to $230 billion, exceeding that of even entertainment giant Disney, which has a market value of $218 billion.
The pandemic hasn’t been entirely beneficial to Netflix, however, as the virus led to a months-long pause in film and television production. Netflix has said it has enough content in the well to last into 2021, but huge subscriber gains could lead to greater demand.
“We think the likely giant spike in new subscribers increases pressure on Netflix for retention,” said Wedbush. “More consumption of content suggests even greater need to replace content with something new,” they added, saying they expected Netflix’s spending on new content to increase to 2019 levels by next year.
Netflix also faces increased competition in streaming, notably from Disney+, which reached 50 million subscribers in April just five months after its launch. New challengers also include HBO Max, which debuted in May, and NBC’s new streaming service Peacock, which rolled out today beyond the Xfinity subscribers who already had access.
Still, Netflix is in an enviable place compared to many other entertainment businesses in the pandemic like movie theaters and concert venues.
“Netflix is much better positioned than many of its competitors,” said eMarketer analyst Eric Haggstrom. “Its 2020 content release schedule won’t be significantly impacted, it isn’t reliant on sports, live events or advertising.”
He added: “It also doesn’t have to play a delicate balancing act between selling content to legacy partners or putting content on a new streaming service. Netflix will weather this crisis better than almost everyone else in the media industry.”
