Netflix Breaks Down Positive and Negative Impacts of Coronavirus Lockdowns on Its Results

The streaming giant said that despite adding many more subscribers than expected, its international revenue was damaged by currency impacts. Production stoppages could also have ripple effects.
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After a crowd-pleasing earnings result, Netflix management had a few words of caution for investors. 

The streaming giant blew away estimates on subscriber growth, adding 15.77 million new paying subscribers in the March quarter -- more than double its own guidance of 7 million, and topping analyst estimates of 8.22 million. But Netflix  (NFLX) - Get Report also warned of potential bumps in the road ahead as it navigates the coronavirus pandemic. 

In a letter to shareholders, Netflix said that the huge increase in both subscriber growth and overall viewing is temporary, and certain to decelerate once the pandemic subsides and the current period of home confinement ends.

For the current quarter, the company guided for 7.5 million new paying subscribers -- but said that that guidance is mostly "guesswork." 

"The actual Q2 numbers could end up well below or well above that, depending 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," Netflix wrote. Analysts polled by FactSet were forecasting 4.14 million new paying subscribers this quarter on average. 

Netflix highlighted a number of new shows and movies going live this quarter, including Space Force, a comedy starring Steve Carrell, and the miniseries Hollywood from Glee creator Ryan Murphy. 

While its content slate was only "modestly" impacted last quarter by production stoppages, they could produce ripple effects for Netflix in the quarters ahead, the company said. 

"The impact on us is less cash spending this year as some content projects are pushed out. We are working hard to complete the content we know our members want and we’re complementing this effort with additional licensed films and series," Netflix wrote, adding that it's difficult to size up the impact in light of new competition. 

NBCUniversal's  (CMCSA) - Get Report Peacock launched to Comcast subscribers last week, and WarnerMedia's  (T) - Get Report HBO Max launches May 27. Other streaming competitors include Disney+  (DIS) - Get Report, which has shown formidable subscriber growth this year, Amazon  (AMZN) - Get Report Prime Video and others. 

Coronavirus also explains what looks like an odd inconsistency in Netflix's March earnings, at first glance: While its new paid subscribers were much higher than expected, its revenue was in line with expectations, at $5.77 billion versus a $5.75 billion Wall Street consensus. 

That's because the pandemic has strengthened the U.S. dollar relative to other currencies, depressing its international revenue growth, Netflix said. 

"As an example, the price for our standard plan in Brazil is R$33, which used to be $8.5 last year but now is $6.5 based on April 2020 F/X rates, so we have a ~25% decline in U.S. dollar average subscription price from Brazil, which offsets strong membership growth," the company said. 

That will hold true in the current quarter as well, according to the company's guidance. Netflix forecasts 7.5 million new paid subscribers for the June quarter, well above estimates of 4.14 million -- but projects revenue of $6.05 billion, only slightly above a $5.98 billion consensus. Its June quarter profit guidance is $1.81 per share, above a $1.55 consensus. 

Netflix is the first large-cap U.S. tech firm to post its March quarter results, in what will be a closely-scrutinized series of earnings reports. 

U.S. stay-at-home orders picked up steam in the second half of March, with just a couple of weeks left in the quarter, but the economic damage was swift and has touched many tech segments ranging from hardware to digital advertising. 

Apple  (AAPL) - Get Report, Facebook  (FB) - Get Report and a smattering of other U.S. firms revised their March quarter forecasts and/or withdrew their full-year guidance in response to the pandemic.