Netflix (NFLX) started 2021 with weak first quarter subscriber growth, below our estimate and the relatively conservative guidance issued in January. The subscriber pull forward in the first half of 2020 and the global increase in competition appear to have stunted net additions. Second quarter subscriber guidance is also very weak: 1 million net adds would be one of the lowest quarters ever for Netflix. We continue to think that the expansion of Disney+, HBO Max, and other services will increase churn and pressure gross adds for Netflix over the near future. We maintain our narrow moat and fair value estimate of $250.
Netflix posted 4.0 million net adds during the quarter, with 0.5 million in the U.S. and Canada, or UCAN, versus guidance of 6.0 million. The company no longer provides guidance for both domestic and international net adds. Netflix’s streaming base continues to expand, ending the quarter at 209 million global paid subscribers, up 14% from 183 million a year ago. First quarter net adds were driven by Europe, Middle East and Africa, or EMEA, which added 1.8 million, and the Asia-Pacific (1.4 million).
Revenue of $7.2 billion was up 24% versus a year ago, with three of the four regions seeing significant increases in revenue per customer. UCAN revenue improved 17% year over year as the firm benefited from the price hike in 2020 and a larger subscriber base. ARPU was up 9% versus a year ago to $14.25, implying that the majority of the customer base is on the standard HD plan at $14 with a growing share on the 4K plan at $18. As we have previously noted, Netflix has only one source of revenue (streaming subscriptions) with two levers to increase revenue: subscribers and price. Given the high penetration in the U.S., increased competition, and high customer awareness, gaining marginal subscribers is getting tougher. Price increases may be the only real lever left to grow U.S. revenue and we expect that further increases may cause churn to spike up sharply.
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