Netflix Q3 subscriber growth stalls amid pandemic surge slowdown

By Robert Scammell

Streaming giant Netflix saw subscriber growth slump in Q3 as the pandemic-driven surge it enjoyed earlier this year ran out of steam.

The company added 2.2 million net paying subscribers in Q3, a 68% decrease on the 6.8 million additions during the year-ago period.

This is below the 2.5 million target Netflix set for this quarter, and notably lower than the 3.3 million net adds forecasted by analysts. It brings Netflix’s total paying subscriber count to 195 million.

In a letter to shareholders, Netflix attributed the slowdown in subscriber growth to the “pull-forward effect” of its record numbers in the previous two quarters.

The streaming firm added 15.8 million and 10 million net subscribers in Q1 and Q2 as lockdown restrictions drove up demand for stay-at-home entertainment. For the first nine months of 2020, Netflix added 28.1 million paid memberships – outpacing the 27.8 million net adds for all of 2019.

The company previously cautioned that these record numbers would lead to a slowdown in new subscribers in Q3.

Revenue for the quarter stood at $6.44bn, ahead of its guidance and up 23% year over year. Net income came in at $790m, while diluted earnings per share were $1.74.

Jesse Cohen, senior analyst at uk.Investing.com, said: “Even though we expected slowing user growth in the US, its third-quarter subscriber numbers and fourth-quarter guidance are a cause for concern. Easing Covid-19-related restrictions, combined with intensifying competition, are likely to pressure the stock in the short-term.

“People who relied on unbridled pandemic-induced subscriber growth are beginning to have second thoughts. It will be hard for the streaming king to repeat a similar or better performance in the coming quarters.”

New content challenges

Like other video content companies, Netflix faces the looming threat of running out of new content due to coronavirus restrictions delaying productions.

Adding fresh films and series will be key for Netflix to maintain subscriber growth, particularly at a time when it faces increasing competition from the likes of Disney+, HBO Max and Apple TV, among others.

In its Q3 report, Netflix said it expects to add more Netflix originals in each quarter of 2021 than 2020, despite production hold-ups.

“Netflix has faced some negative sentiment from having to pause the release schedule for key shows, but it has now restarted filming across many countries,” said Martin Garner, COO at research firm CCS Insight.

“It has completed the main shooting on over 50 titles since March and is on course to complete 150 by year-end. The company expects to launch a larger number of original programmes throughout 2021, but long production times mean that new series of some of the most popular shows will only be available in the second half of next year.”

For Q4, Netflix forecasts 6 million new paying subscribers, down on the 8.8 million added in the year-ago period. Again, Netflix attributes this drop to the surge in subscribers in the first half of 2020. Hitting this target would mean a record year for subscriber growth of 34 million paid net adds. The previous record was 28.6 million in 2018.

It forecasts revenue of $6.6bn and net income of $615m.

Netflix shares fell by 3% following the publication of its Q3 results. Its share price is up by 59% since the start of the year.


Read more: Disney+ nets 60 million subscribers in 9 months


 

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