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Netflix Adds Nearly 16m New Subscribers Amid COVID-19 Lockdowns

Co-Founder & Head of Business, Transfin.
Apr 22, 2020 6:39 PM 2 min read

Netflix reported Q1/20 numbers on Tuesday with an imposing 15.77m quarterly net new subscriber additions amid the COVID-19 lockdowns currently in place in many countries. The sharp uptick in net adds was largely attributed to worldwide home confinement measures (and stay at home = more video streaming).


The subscriber additions were substantially ahead of estimates and as such representing the flashiest number in the print. However with some mean-reversion fully expected in subsequent quarters, albeit with high uncertainty around precise cadence given no one knows how long the pandemic lasts.


Revenues Largely In-Line Due to Forex Headwinds

Revenues grew an impressive 27.6% YoY to $5.77bn but were largely in-line with estimates despite stronger-than-expected subscriber progression.


This was entirely due to strength in the US Dollar, which pressured reported revenue from international markets. Note that of the 15.77m net adds, only 2.31m came from US & Canada, while EMEA, LATAM and APAC all delivered higher net adds at 6.96m, 2.90m and 3.60m respectively. This, coupled with an upswing in the US Dollar, significantly pressured the reported top-line. 


Free Cash Flow: Not Just a Flash in the Pan

Netflix generated $162mn in free cash flow in the quarter driven largely by growing revenues and operating margins only partially offset by growth in content investments. Netflix’s rigmarole towards positive free cash flow is a heavily watched spectacle on Wall St. In that context, heightened focus on ‘Netflix Originals’ which is now showing up in loftier operating margins presumably bodes well for the free cash flow profile going forward.


Furthermore, with expected cash spend in coming quarters expected to be pushed to the outer years in light of currently stalled productions, the 2020 FCF picture is expected to be much better. Management is guiding $1bn cash burn vs the $2.5bn burn expected earlier. While there are timing nuances, there is also solid growth in margins which is increasingly painting an optically pleasing free cash flow picture.


The company also told shareholders that it expects viewing and subscriber additions to decline going forward in July-December as stay at home orders are expected to be eased and lockdowns lifted.


PS - Here's Netflix's latest letter to its shareholders released with the results, in case of interest.


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