NFLX Netflix Inc

By Joe Flint and Micah Maidenberg 

Netflix Inc. ended the first quarter with nearly 16 million new subscribers as people around the globe stuck at home due to the coronavirus pandemic are increasingly turning to streaming services to entertain themselves.

The 15.8 million net customer additions were more than double what the streaming giant had forecast -- a breakneck pace of growth the company said was unlikely to continue. Netflix now has 182.9 million subscribers world-wide.

"Like other home entertainment services, we're seeing temporarily higher viewing and increased membership growth," Netflix said in its letter to shareholders, noting that much of that growth came in March when shelter-at-home orders began. "We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon."

In a video to discuss the results, Chief Executive Reed Hastings said, "We, too, are really unsure of what the future brings." He said it would be a couple of months before the company can "grapple with the long-term implications."

With the pandemic leading to the shutdown of movie theaters, professional sports leagues, concerts and other events, streaming services such as Netflix have emerged as one of the rare video-entertainment options still available.

"People want entertainment. They want to be able to escape and connect whether times are difficult or joyous," Mr. Hastings said.

Netflix said it was able to operate remotely "with minimal disruption in the short to medium term," but it, too, faces tremendous challenges due to the coronavirus. Production on practically all movie and television content has been shut down for weeks, and there is no set date for the content factories to start churning again.

Netflix said the production shutdown will only have a modest impact on new content for the next three months. But if producers and actors remain on the sidelines, it could become problematic. Netflix is rushing to finish shows that are in final edits and is aggressively acquiring content from third-party suppliers.

"Our 2020 slate of series and films are largely shot and we're pretty deep into our 2021 slate," said Ted Sarandos, chief content officer.

Despite the production shutdown, Netflix said the bulk of its animation production team is working from home. It also has more than 200 projects in postproduction, which can also be done during the quarantine. Writers on existing series are continuing to work on new scripts.

Mr. Sarandos said several things have to happen before production can resume, including the lifting of shelter-at-home orders and protocols for testing on sets and elsewhere.

"We have to be able to look our employees and cast and crew in the eye and say this is a safe place to work," Mr. Sarandos said.

Most of the company's subscriber growth occurred outside of North America. Netflix said it added almost 7 million subscribers in the region including Europe and the Middle East, 2.9 million in Latin America and 3.6 million in Asia.

In the U.S. and Canada, where it faces more competition as other media companies launch their own streaming services, Netflix reported 2.3 million new paid subscribers, compared with a gain of 548,000 in the fourth quarter and 1.9 million in the first quarter a year ago.

Shares rose 1% in after-hours trading. The stock is up 34% year to date, making the streaming service one of the few companies to see its shares appreciate since the coronavirus crisis started.

Usage was boosted in the quarter by several popular original efforts, including the third season of the drama "Ozark" and the documentary series "Tiger King: Murder, Mayhem and Madness." Netflix said "Tiger King" was sampled by 64 million member households. Its unscripted dating show, "Love is Blind," also broke through with 30 million member households tuning into some or all of the series.

The increase in subscribers and viewing hours put pressure on internet capabilities in some parts of the world during the quarter. Netflix reduced bandwidth in Australia, Mexico, India and elsewhere after requests from local governments. Netflix said the quality of its service was maintained and it is working with internet service providers to increase capacity.

The company said its service has seen "significant disruption when it comes to customer support and content production." Netflix said it has added 2,000 remote agents to handle the surge in customer calls which are an offshoot of the increased demand for content.

Netflix said it generated revenue of $5.77 billion for the first quarter, up from $4.52 billion a year earlier. Analysts had forecast $5.75 billion in revenue for the latest period. The company said strong subscriber growth was offset by a sharply stronger U.S. dollar, which depressed its international revenue.

Profit rose to $709.1 million, or $1.57 a share, from $344.1 million, or 76 cents a share, the year earlier. The company was expected to earn $1.64 a share, according to estimates compiled by FactSet.

Netflix, which raised its prices in the U.S. in the first quarter of last year, isn't planning any increases in the near future.

"We're not even thinking about price increases," said Chief Product Officer Greg Peters.

Netflix is facing heightened competition from traditional media. Walt Disney Co.'s Disney+, which launched last November and costs $6.99 a month, said earlier this month it has passed 50 million paid subscribers world-wide.

"I've never seen such a good execution of the incumbent learning the new way and mastering it," Mr. Hastings said of Disney's early success.

WarnerMedia, a unit of AT&T Inc., said Tuesday its new streaming service HBO Max, will launch May 27 at a monthly fee of $14.99. Comcast Corp.'s Peacock platform made its debut in the cable giant's homes last week and will be available nationally in July.

Apple Inc. also launched a streaming option last fall called Apple TV+.

Americans spent an average of $37 a month on streaming services in March, up $30 in November, according to a recent survey by The Wall Street Journal and the Harris Poll. The survey found Netflix was the biggest streaming beneficiary in the crisis, with some 30% of respondents saying they added a Netflix subscription in March.

Netflix said its deep reserve of acquired and original content likely puts it in better position to weather the pandemic than its rivals, which are also affected by production shutdowns. Comcast last week said most of the original shows that were to headline the launch of Peacock likely won't be ready until 2021, while WarnerMedia on Tuesday said a much-anticipated reunion of the cast of "Friends" won't be released until the summer or fall.

"Since we have a large library with thousands of titles for viewing and very strong recommendations, our member satisfaction may be less impacted than our peers' by a shortage of new content, but it will take time to tell," Netflix said.

Write to Joe Flint at joe.flint@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

April 21, 2020 19:19 ET (23:19 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.