Netflix delivered its latest quarterly announcement and it was a doozy. Netflix smashed expectations by adding nearly 16 million new paid subscribers. While management acknowledged that they benefitted from the stay-at-home dynamics currently in place with the coronavirus and that subscriber adds were likely pulled forward from future quarters, this is hardly a bad thing. In fact, I think management downplayed this too much.
The reality here is that in subscription businesses, pulling subscriber adds forward is a great thing because it improves cash flow. Netflix is a known borrower of the debt markets to fund content and growth, so pulling subscribers forward is a great thing!
The overall increase in subscribers just shows how well positioned the business is, but perhaps just as important was management’s comments about their production pipeline. Because Netflix releases all episodes at once, they work well into the future to power the delivery of fresh content to its millions of users. As such, Netflix is likely better positioned than any other company with respect to having new content in the pipeline. Remember, much of Hollywood and production around the world is shut down right now due to the coronavirus. Netflix management said they have most of 2020 stuff done and also much of 2021 planned shows. This is incredible and will improve new growth and subscriber retention through the next year plus.
Netflix is a buy here. Over the next five years, Netflix will continue to solidify itself as a “utility” like service for hundreds of millions of users around the globe.