Netflix delivered another big quarter for subscriber growth and while much of that can be attributed to the pandemic, it appears that the company’s domestic subscriber growth is accelerating.
Logic dictates that subscriber growth for Netflix would start to slow down in markets like the U.S. and Canada that are already heavily saturated. The company has 73 million subscribers in the U.S. and Canada, which Lightshed analyst Rich Greenfield pointed out is approaching the number of pay TV subscribers in the U.S. And yet, Netflix has added 5.25 million new paid subscribers in the U.S. and Canada over the past two quarters, close to double what the company added in all of 2019.
“The most important fact to walk away with is that U.S. subscribers are accelerating. [Netflix is] at 73 million subscribers and they’ve been accelerating in the U.S., which just speaks to how big the global opportunity is. The global opportunity is way bigger when you realize how penetrated the U.S. is,” said Greenfield today during a CNBC interview.
"The most important fact to walk away with: U.S. subscribers are accelerating. They're at 73M subscribers and they've been accelerating in the US, which just speaks to how big the global opportunity is," says analyst @RichLightShed on $NFLX latest quarter. pic.twitter.com/Tww50eOHpU— Squawk Box (@SquawkCNBC) July 17, 2020
Lightshed crunched the numbers on Netflix’s U.S. and Canada (UCAN) subscriber growth over the past few years and found that UCAN growth through the first half of 2020 is not only blowing away 2019, but it’s getting dangerously close to already exceeding all the domestic growth Netflix recorded in either 2017 or 2018.
The UCAN (US & Canada) is Netflix's largest most penetrated market and year-over-year growth is ACCELERATING -- look at 1H net adds vs full year 2019, not to mention 2018 and 2017 + ARPU up 6% in UCAN— Rich Greenfield, LightShed (@RichLightShed) July 16, 2020
Takeaway is TAM globally larger than investors realize $NFLX pic.twitter.com/ROUfhzopTq
However, the domestic growth figures haven’t exceeded 2017 or 2018 yet and if Netflix’s forecast for the back half of 2020 is any indication, they may not. Netflix reiterated that the pandemic has likely pulled forward some of the demand it was going to see later this year. That theory manifested in a relatively paltry forecast for 2.5 million new global subscribers in the third quarter, significantly smaller than the 6.8 million it added during the same period in 2019.
Netflix CFO Spencer Neumann said his company is looking at third-quarter guidance in the context of what just happened in the second quarter. He said the 10.1 million new members the company added is the largest growth Netflix has ever recorded during a second quarter. He also said that the best Netflix has ever done for subscriber growth across a combined second and third quarter was in 2018 when the company added 11.5 million new members.
“So, if we this year deliver on that Q3 guidance, that means we’re growing by 12.5 million members in that same time period, which is a million more that we’ve ever done,” said Neumann during the company’s second-quarter earnings video.
Netflix’s UCAN subscriber net additions accounted for approximately 14% of total subscriber growth in the first quarter and 29% in the second quarter. If Netflix hits its third-quarter forecast exactly and the UCAN percentage splits the difference at 20%, that’s 500,000 net additions, less than the 600,000 the company added in the third quarter of 2019.
Of course, Netflix’s guidance could be hedging on the side of conservative since it’s unclear just how re-opened the U.S. will stay over the next few months as confirmed coronavirus cases rise, which could lead to another surge in demand for streaming entertainment.
However, even if UCAN subscriber growth rates return (or dip slightly below) previous levels, Netflix is still expanding its total subscriber base at a meaningful pace and likely passing 200 million global paid subscribers by the end of 2020.