Netflix’s Virus-Driven Subscriber Growth Tapering Off

Netflix Inc. said subscriber growth slowed in the third quarter, highlighting the fresh challenges the company faces from competitors ramping up their own streaming services as the coronavirus pandemic continues to disrupt the entertainment industry.

According to The Wall Street Journal, Netflix on Tuesday reported that it added 2.2 million subscribers in the quarter on a net basis, short of its forecast in July of 2.5 million new subscriptions for the period. The slowdown comes after two quarters of much-larger-than-expected growth, during which the streaming service added nearly 26 million net subscribers—almost as many as for the entirety of 2019.

Profit rose to $790 million, or $1.74 a share, from $665 million, or $1.47 a share, the year earlier. Analysts had expected $2.13 a share, according to FactSet.

The streaming giant’s ability to reel in subscribers during the first half of the year marked it as one of the companies that benefited from the pandemic. Consumers moved to purchase Netflix subscriptions as Covid-19 initially spread and officials locked down economies, resulting in millions of people spending more time at home. The suspension of professional sports leagues, cancellation of events like concerts and closure of movie theaters earlier this year reduced competition.

WSJ Graphic 10/21/20

Executives at the Los Gatos, Calif.-based company previously warned that growth had been pulled forward amid the pandemic and said they expected subscription increases to lessen during the second half of 2020. Meanwhile, sports have resumed, more people have been traveling and cinemas have reopened.

Similar to previous quarters, Netflix reported stronger gains in many markets overseas than in the U.S. and Canada. For the latest quarter, it said it added one million subscribers in Asia, 760,000 in the region including Europe and the Middle East and 260,000 in Latin America.

In North America, the company gained 180,000 additional subscribers for the third quarter, down compared with the gain of more than 2.9 million in the second quarter.

The company reported revenue of $6.44 billion, up from $5.25 billion a year earlier. Analysts forecast $6.39 billion in revenue for the latest quarter.

For the fourth quarter, Netflix expects to add six million subscribers, down 31% from the 8.8 million it added in the same period last year. It also anticipates the first six months of 2021 to be down. The continued precariousness surrounding the coronavirus makes any projection uncertain, the company said. It is hoping that in later 2021 its growth will return to pre-pandemic levels.

Even with the pandemic, Netflix is still forecasting that it will pass 200 million subscribers world-wide this year.