Netflix Posts Strong Q1 Results Amid COVID-19... "Low Sustainability in Second Half"

COVID-19 Pandemic Windfall Expected to Last Only Until the Second Quarter

[Asia Economy Reporter Kum Boryeong] Due to the impact of the novel coronavirus infection (COVID-19), the leading over-the-top (OTT) service Netflix showed strong performance in the first quarter. However, there are voices suggesting that this positive momentum may be difficult to sustain through the second half of the year.

According to Hanwha Investment & Securities on the 25th, Netflix's first-quarter revenue reached $5.77 billion, up 27.6% year-over-year and 5.5% quarter-over-quarter. Operating profit surged 108.7% year-over-year to $960 million. The operating margin stood at 16.6%.

The biggest reason for Netflix's strong performance was the "new subscribers." As COVID-19 spread globally, net subscriber additions surged in March. Paid subscribers increased by 22.8% compared to the same period last year. In particular, average revenue per user (ARPU) in the North American region, where the exchange rate impact is limited, rose 14.3% year-over-year, which was analyzed to have had a positive effect.

Choi Bowon, a researcher at Hanwha Investment & Securities, explained, "Netflix continues to see net subscriber inflows due to COVID-19, and new content is expected to be released as scheduled in the second quarter following the first quarter. Revenue is increasing in North America, where the exchange rate impact is limited, raising expectations for top-line growth. Additionally, due to delays in content production, cost expenditures are expected to be lower than anticipated in the short term."

However, risk factors still exist. Once the COVID-19 situation eases and outdoor activities increase, the previously rapid growth in net subscriber additions may slow down. During periods of a strong dollar, revenue growth in overseas regions where subscribers are rapidly increasing may also be limited.

Jo Yongmin, a researcher at Shinhan Financial Investment, said, "As governments worldwide strengthen 'social distancing' measures to prevent the spread of COVID-19, the positive spillover effect is expected to continue into the second quarter." However, he added, "The likelihood of this positive spillover continuing into the second half is low. The net subscriber increase in the first half reflected both new demand creation and the pre-recognition of new subscribers for the second half. Furthermore, as restrictions on outdoor activities are lifted, OTT demand is expected to decrease. As the COVID-19 situation stabilizes, Netflix's appeal is expected to diminish, so a cautious approach is recommended."

This content was produced with the assistance of AI translation services.