Netflix’s sudden growth unsustainable; Warns Management

Global video streaming platform Netflix added 10 million subscribers in the second quarter, well above expectations, but management cautioned that its growth spurt caused by the pandemic is slowing.

The streaming company warned investors that the growth of subscribers would slow in the second half of the year, after enjoying the lift from lockdown life in the last few months. Netflix is likely to add only 2.5 million new subscribers in the period from July to September, which would be its worst performance in years.

The company also announced that Ted Sarandos, who managed content during the major investment phase of the company, would be promoted to co-head executive making him a clear successor to the founder and fellow co-CEO Reed Hastings.

Since the forecast, Netflix shares fell by around 10% in after-hours trading. This year, the stock has risen more than 58%, hitting record highs as investors flocked to one of the few firms that benefited from the pandemic.

Netflix now claims to have 193 million subscribers worldwide, with the 10.1 million added in the previous quarter beating its own 7.5 million forecasts and 8.1 million Wall Street forecasts.

With people staying home to contain coronavirus as it has spread around the world this year, Netflix had gained almost as many subscribers as it did in all of last year by June. In the first half of 2020, the company added 26 million subscribers; its user base increased by 28 million in 2019.

According to Netflix’s quarterly letter to its shareholders, it lost its subscribers in June. The letter said, “As we expected, the growth is slowing as consumers get through the initial shock of COVID-19 and social restrictions.”

Sophie Lund-Yates, an analyst said, “If you haven’t subscribed to Netflix during the lockdown, the chances are you never will and while Netflix is still the biggest fish in the tank if it wants to keep it that way, there is work to be done.”

Netflix’s subscriber base witnessed growth even as it faced major competition from newcomers including Disney Plus that debuted in November last year and HBO Max that launched in May.

By 2021, the disruption will likely lead to the release of more of Netflix ‘s main titles in the second half of the year, the company said. The overall number of original 2021 film and television shows is set to surpass 2020.