In its report for the third quarter of 2020, Netflix announced 2.2 million paid global subscribers in Q3. Analysts had estimated the company would add somewhere between 3 and 3.3 million new subscribers. "Growth has slowed with 2.2m paid net adds in Q3 vs. 6.8m in Q3,” Netflix said. “We think this is primarily due to our record first-half results and the pull-forward effect we described in our April and July letters. In the first nine months of 2020, we added 28.1m paid memberships, which exceeds the 27.8m that we added for all of 2019."
Netflix previously forecast adding 2.5 million paid streaming customers in the third quarter after record net additions of 10.1 million in Q2 and 15.8 million in Q1 this year. That subscriber “pull forward” in the first half of 2020 led the company to forecast lower net adds in the back half of the year. The company reiterated that point in its Q3 letter to shareholders, saying it missed the subscriber forecast for the September quarter. The streaming giant posted a revenue of $6.44 billion, a 22.7% increase, and earnings of $1.74 per share (versus $1.47 in the year-ago period). Wall Street analysts on average expected third-quarter sales of $6.38 billion and EPS of $2.13.
Netflix reported 195.15 million paid streaming customers worldwide, a 23.3% year over year increase as of the end of this month. Subscriber growth notably decreased in Latin America, in which 260,000 subscribers in the region during the most recent quarter (vs. 1.49 million in the year-prior period). For Q4, Netflix forecast 6 million paid net adds, versus 8.8 million in the year prior. If it hits that number, that would put the company at a record 34 million paid net adds for 2020, well above its prior annual high-water mark of 28.6 million in 2018. Next year, the streaming giant expects its subscriber growth to return to pre-COVID levels. “We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long-run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service,” Netflix said.
The service projects originals in each quarter of 2021 than this year, even with COVID production suspensions. Netflix has re-started production for several of its originals, which include “Stranger Things” Season 4, action film “Red Notice” starring Dwayne Johnson, Gal Gadot and Ryan Reynolds, and “The Witcher” Season 2. Since mid-March, according to the company, it has already completed principal photography on more than 50 productions, and “we’re optimistic we will complete shooting on over 150 other productions by year-end.”“We’re confident that we’ll have an exciting range of programming for our members, particularly relative to other entertainment service options,” the company told shareholders.
“The Old Guard,” the most popular title in Q3, garnering 78 million subscriber households viewing the action-thriller movie in the first four weeks of release. The caveat: Netflix tallies views based on every account that watches a given title for at least two minutes, rather than reporting an average-minute audience as is the TV industry’s standard. Netflix noted that its free cash flow was positive for a third consecutive quarter, coming in at $1.1 billion. For 2021, Netflix is forecasting free cash flow to be between -$1 billion and break-even.
We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long-run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service.” Netflix
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