Netflix broke subscriber records in 2020. Will it slow down?
Netflix had a banner year in 2020, boosted by a global pandemic that triggered a wave of home entertainment viewing and popular series such as "The Queen's Gambit."
The Los Gatos, California, streamer broke its all-time record for net additional subscribers in 2020, gaining 37 million for the year, compared with its previous record gain of 28.6 million new subscribers in 2018. At the end of last year, Netflix reported about 204 million subscribers worldwide.
Due to the surge of subscribers during the first half of last year, Netflix projected that growth would slow in the fourth quarter.
The number of new subscribers declined 3% to 8.5 million in the fourth quarter compared with a year earlier.
Still, the growth was better than expected. The company and analysts had projected about 6 million subscriber additions in the quarter.
Netflix cited the success of original programming such as "The Queen's Gambit," which premiered in October, drawing 62 million households in its first 28 days.
Netflix revenue in the fourth quarter increased 22% to $6.6 billion compared with the same period last year, while net income declined 8% to $542 million, or $1.19 a share, during the quarter. Revenue matched analysts' projections, but Netflix missed Wall Street's earnings estimates of $1.36 a share, according to FactSet.
Netflix said its fourth quarter net income included a $258-million non-cash loss related to its European debt.
The company is the dominant video subscription streaming service in the U.S., but rivals such as Disney+ are gaining ground. A significant advantage Disney has is its deep library of children's content and popular brands including "Star Wars" to attract new subscribers.
Disney+ had seven of the top 10 movies that were streamed last year based on time spent viewing, according to Nielsen. Many of those titles were animated. Disney+, which launched in November 2019, already has more than 86 million subscribers.
Netflix is also dealing with licensed programs that are popular with its viewers moving off its platform. In January, "The Office," one of the most watched licensed shows, left Netflix's library and joined NBCUniversal's Peacock streaming service.
Meanwhile, Netflix has invested heavily in its own original programming. The company has produced animated movies, such as last year's "Over the Moon," and last week announced 70 new movies that will stream on its service this year.
The company has also recruited high-profile showrunners to develop content for the service.
In December, Shonda Rhimes' company Shondaland released "Bridgerton," based on romance books by Julia Quinn. The series was watched by 63 million households in its first four weeks, Netflix said, which counts a view as at least two minutes.
This month, Netflix released "Lupin," a French series about a burglar that has become one of its most popular shows in the U.S. and it is estimated to have been viewed by 70 million households in its first 28 days.
"Our strategy is simple: if we can continue to improve Netflix every day to better delight our members, we can be their first choice for streaming entertainment," Netflix said in a letter to shareholders Tuesday.
Despite rising competition, analysts said they believe Netflix has opportunity to grow its user base abroad in countries including India. In the fourth quarter, 83% of its additional subscribers came from outside the United States and Canada.
The company recently raised its prices in the U.S., justifying the price increase due to the amount of money it reinvests in its content.
"Netflix is betting that a strong original content release slate will keep viewers engaged and churn low in 2021 even as they raise prices," said Eric Haggstrom, a forecasting analyst with research firm EMarketer. "It will be difficult for Netflix to continue to grow it's audience in 2021, but they're putting themselves in position to continue to build off a strong 2020."
As the pandemic continues, it is unclear what effect that will have on entertainment companies. A recent surge in COVID-19 deaths has caused some local productions, including shows that stream on Netflix, to pause or delay work.
Netflix said Tuesday its productions are running in most regions with more than 500 titles in post production or will soon stream on the platform.
Netflix shares rose $3.79, or 0.8%, to $501.77 on Tuesday.