Netflix Q1 2020 Earnings Report — Unpacking The Numbers!

Couple of weeks back, Netflix released its Q1 2020 earnings report.

And for a layman like me, or for people with just cursory aspirations to know how the company is doing in general, there were just 4 numbers worth paying attention to.

  • Q1 Global paid subscribers added — 15.77M (vs 7M expected)
  • Q1 Revenue — $5.7B (vs $5.7B expected)
  • Q2 Global subscriber forecast — 7.5M
  • Q2 Revenue forecast — $6B

Now, after looking at these numbers, the very first question that hit me was, if the paid subscribers rate more than doubled, how can the revenues still be the same as to what it was expected? It just made no sense.

Another question that quite did not made much sense, from the initial look, was the modest increase in both subscriber numbers and revenue forecast.

And I figured, anyone following Netflix and curious about the company’s growth prospects, might have the same questions.

So I did some digging to unravel the answers to the two questions and in the process, also found some interesting insights to the ever lively debate of competition around Netflix & the other OTT giants.

Let’s jump in!

  1. No change in revenue even with a 2 fold increase in subscriber numbers?

There were 2 key reasons for this.

  • Strengthening US Dollar vs Weakening Foreign Currencies

Here’s an excerpt from an article on CNN,

Since the COVID-19 crisis began, the value of the US dollar index rose to near record highs. The greenback has levelled off a bit, but has maintained an edge relative to most major currencies, including the euro, China’s yuan and the Japanese yen.

So for every acquisition Netflix made overseas, it actually received lesser values when compared in US dollars. Had the same acquisitions were made in the US the revenue would have been comparable with that of the new paid user numbers.

Albeit not that major, but the second reason was,

  • $150M COVID-19 Film & TV Emergency Fund

Netflix created this emergency fund, initially worth $100M (which later it increased to $150) to provide financial aid to people in the movies and audiovisual sector. And due to the production halt of its movies / series, it continues to pay its workers from this fund.

Along with this, a $218M charge for pausing productions also fell on company’s balance sheets, adding to the comparable lower revenue.

2. Modest Q2 subscriber predictions?

While it’s understandable that the current spike was due to the lock-down mandate, a mere 0.5M increase in subscriber forecasts for a whole quarter wasn’t testament to Netflix’s traditional growth ambitions.

But the fact is, Netflix saw that majority of the Q1 subscriber additions didn’t happen at least till Mid-March (post the stay-at-home orders).

Here’s how Netflix’s US sign-up page rose week over week by:

  • March 8: 3%
  • March 15: 39%
  • March 22: 123%
  • March 29: 123%
  • April 5: 115%

So obviously, it expects the numbers to go down once the lockdown is over and the acquisition rate to continue at the usual pace it usually does.

Another reason is its expenditure on producing its trademark “Netflix Originals” content. As per this report, Netflix was initially speculated to spend over $17B in 2020 on its Original content — a number which is supposed to go down quite substantially. This not only because Netflix, like more companies, is looking to conserve cash to sail through the pandemic but also because of the production studios being shut. And less Original content means lower acquisition rates.

And finally, with increasing number of people losing jobs, Netflix might become a luxury that not everyone will be able to afford, leading to increased cancellations. Hence, this challenge has also been accounted in its growth predictions.

3. Competition?

Let’s look at how some of Netflix’s major competitors (both current & touted) are doing at the moment. (The 1st point for Amazon Prime was actually an eye-opener)

Amazon Prime:

  • A 2018 PwC survey said 3 out of 4 people bought Prime for its delivery promises and not for its content offering. And over 50% said that they’re likely to switch to other brands if Amazon does not fulfil its delivery promises.
  • Subscription revenue of Prime in Q1 2020 rose by only 28%, which was the 2nd slowest among Amazon’s 6 revenue streams — Online Stores, Physical Stores, Retail, Subscription, AWS & Others.
  • There’s a growing trend of “Amazon Prime refund” & “Amazon Prime cancel” in US in last 90 days. This is due to the most obvious reason of people not getting their orders fulfilled on time and Amazon not yet having a policy of cancellation or extension of its Prime membership.


While in the future there’s every chance that Disney+might go on to emerge as Netflix’s prime (pun not intended) competitor, with Reed Hastings himself showing appreciation for Disney+’s execution strategy and counting it as the only real rival to Netflix.

However, going solely based on the numbers disclosed in the media, it doesn’t really paint a true picture.

And I’ve just 2 data points to support that.

  • Disney+ reported 50M paid subscribers in April which also counts 8M of HotStar. But HotStar has never disclosed its premium subscriber numbers publicly. And this 8M not just includes its VIP members (the subscription costs for which is substantially lower and which offers varying degrees of Disney+ content) but must also be counting old customers acquired before Disney came into the picture with HotStar (Disney+ hasn’t clarified how it’s counting paid subscribers). And it doesn’t take someone the brain of Elon Musk to figure out which subscription tier will be having more users in India.
  • Out of this 50M again, a further 7–8M came from Verizon media. So?
    Well, Disney+ has a deal in place with Verizon media where Verizon’s customers are offered Disney+ bundled into their Verizon access, which effectively means, FREE OF COST!

With the upcoming May 27 launch of HBO Max, it’ll be fascinating to see how all these players fare in the global OTT game!!

Product Marketing @ WebEngage || Disciple of Human Psychology & a lifelong Chelsea fan.