Netflix reported revenue of $7.2 billion for the first quarter of 2021, a 24.2% increase year-over-year and consistent with the streaming company’s forecast for the quarter. The company reported 208 million paid memberships globally, representing growth of 14%, but down 2 million paid memberships from the company’s forecast. Netflix attributes this difference to COVID’s significant impact in early 2020 and the “lighter content slate” in the first half of this year because of COVID-related production delays. Short-term, some uncertainty remains about COVID’s impact but, long-term, Netflix is confident that streaming will continue to outpace linear TV.

First quarter highlights

Other highlights from the company’s first quarter earnings report include the following:

• Operating income was $1.96 billion, compared to $958 million in the first quarter of 2020.
• Operating margin was 27.4%.
• Net income for the quarter was $1.7 billion, or $3.75 diluted earnings per share, compared to net income of $709 million, or $1.57 diluted earnings per share in the first quarter of 2020.
• Average revenue per membership increased 6% which is due to foreign exchange rates, price increases and the discontinuation of free trials.

“The extraordinary events of COVID-19 led to unprecedented membership growth in 2020, as it pulled forward growth from 2021, and delayed production across every region. In turn, we ended 2020 with a bigger membership and revenue base than we would otherwise have had, contributing to record Q1 ’21 revenues,” Netflix said in its April 20 letter to shareholders.

Netflix does not believe that competition from other streaming services contributed to their falling short of some of their forecasted numbers.

“In Q1, paid net additions of 4m were below our 6m guidance (and the 16m net additions in the year ago quarter) primarily due to acquisition, as retention in Q1 was in line with our expectations,” Netflix said. “We don’t believe competitive intensity materially changed in the quarter or was a material factor in the variance as the over-forecast was across all of our regions. We also saw similar percentage year-over-year declines in paid net adds in all regions (see our Regional Breakdown table below) whereas the level of competitive intensity varies by country.”

Content

With a deeper content slate in the second half of the year, Netflix expects membership to “re-accelerate.” Content will include returning hits like Sex Education, The Witcher, La Casa de Papel (Money Heist) and You, along with Netflix originals and blockbuster films. Netflix said that production is back up to speed in all regions except Brazil and India, and the company plans to spend more than $17 billion in content, including more originals this year than last year.

In the first quarter, Netflix revealed extraordinary viewing results of some of its most popular titles:

• Firefly Lane, season 1: 49 million watched in first 28 days
• Cobra Kai, season 3: 45 million
• Fate: The Winx Saga: 57 million
• Ginny & Georgia: 52: million
• I Care A Lot: 56 million
• YES DAY: 62 million
• Outside the Wire: 66 million
• To All the Boys I’ve Loved Before trilogy: 51 million

In addition to content, Netflix is focused on the user experience, providing new features like Downloads for You for Android users (iOS is coming soon); Fast Laughs, a mobile feed of short comedy clips; and an improved experience for kids’ profiles.

In terms of competition, Netflix reiterated that it competes with more than just other streaming services. It competes against everything that attracts a consumer’s attention, including entertainment, video gaming and watching user generated content.

“When comparing services, subscriber figures alone tell only part of the story (given bundles, discounts and other promotions) so it’s important to also focus on engagement and revenue as key indicators of success; they drive the flywheel of investment in even more amazing stories for our members and future growth. It’s our job to please our members so much on Monday, that on Tuesday, they start with us, and then they stick with us as their first choice for entertainment,” Netflix said.

Second quarter guidance

The streaming service provided the following forecast for the second quarter of 2021:

• Revenue: $7.3 billion, growth of 18.8% year-over-year
• Operating income of $1.87 billion
• Operating margin of 25.5%
• Net income of $1.4 billion and diluted earning per share of $3.16
• Global streaming paid memberships of 208.6, growth of 8.1% year-over-year

Insider Take

Considering that COVID skewed numbers for the first quarter of 2020, it is interesting that Netflix had such huge increases in revenue and record operating profit and margin. This is a testament to the membership experience and the quality of the content. Despite the price increases, discontinuation of free trials and growing competition from services like Disney+ and HBO Max, Netflix continues to impress, attract and retain paid members. With a stronger slate of content in the second half of the year, it looks like Netflix will have a strong 2021.