Netflix Edges Lower as Cautious Forecast Offsets Solid Q1 Earnings; Coronavirus Lockdowns, Tiger King Boost Paid Subscribers by Record 15.8 Million

Netflix said lockdown easing in the coming months will slow stay-at-home view and subscriber growth, but the streaming service neared 183 million paid global customers over the three months ending in March.

Netflix Inc.  (NFLX) - Get Report shares edged lower in pre-market trading Wednesday after it gave a conservative near-term forecast for subscriber growth as coronavirus lock-ins around the world propelled the streaming entertainment service to a record first quarter.

Netflix added nearly 16 million new paid subscribers over the three months ending in March, more than double the company-provided forecast and the largest single-quarter increase on record and lifted its global total to just under 182.9 million. 

Hits such as Ozark and Tiger King, as well as stay-at-home orders affecting some 90% of the global economy amid the coronavirus pandemic, helped the group generate $5.77 billion in revenues and generate around $162 million in positive free-cash flow. 

Looking into the current quarter, as well as the 2020 financial year, however, Netflix said it sees moderating growth numbers as the pandemic wanes and lockdowns ease, with a second quarter paid subscriber forecast of 7.5 million and revenues of $6.05 billion.

"It's an incredible tragedy for the world. Everyone is wrestling with the implications, both on health, on hunger, poverty. And we, too, are really unsure of what the future brings," CEO Reed Hastings told investors on a conference call late Tuesday. "It's super hard to say if there's strategic long-term implications because we've just been scrambling to keep our servers running well, keep the content, get our post-production done." 

"Our small contribution in these difficult times is to make home confinement a little more bearable, and in a couple of months, we'll all be able to grapple with the long-term implications," he added. "But right now, we're just focused on getting our content out."

Netflix shares were marked 3% lower in early trading Wednesday to change hands at $420.76 each, a move that would trim the stock's year-to-date gain to around 30%. 

"While the dramatically better than expected subscriber results were driven by the global stay-at-home orders related to the unfortunate COVID-19 virus our view remains that COVID-19 is simply accelerating trends already in place (away from traditional PayTV to DTC) and cementing NFLX’s position as the dominant global DTC operator for the foreseeable future,' said Pivotal Research analyst Jeffrey Wlodarczak, who boosted his price target by $85 to $580 following last night's earnings. 

"Subscriber growth is the flywheel that drives a virtuous cycle for Netflix as the larger their subscriber base grows the more they can invest in original content which increases the target market for their service (and reduces existing subscriber churn) + enhances their ability to take future price increases and dramatically increases barriers to entry," he added.