Netflix says these three effects of the coronavirus crisis are impacting its business

Key Points
  • Netflix reported Q1 2020 earnings Tuesday.
  • Netflix pointed toward a strong dollar, a temporary surge in subscribers and a pause in production as the three primary effects the Covid-19 pandemic is having on its financial performance. 
  • Shares of the streaming platform rose 10% in after-hour trading.
Netflix Co-founder, Chairman & CEO Reed Hastings attends a Q&A during a Transatlantic Forum in Lille, France.
Sylvain Lefevre | Getty Images

Netflix released its Q1 2020 earnings on Tuesday. In a letter to shareholders, the company said there are three ways the coronavirus crisis is impacting its business.

"First, our membership growth has temporarily accelerated due to home confinement," Netflix said. "Second, our international revenue will be less than previously forecast due to the dollar rising sharply. Third, due to the production shutdown, some cash spending on content will be delayed, improving our free cash flow, and some title releases will be delayed, typically by a quarter."

Social distancing increased subscriptions

Netflix said it expects subscriptions and viewing numbers to spike as people stay at home, but that subscription growth will likely decline once social distancing mandates are eased.

The company announced it added 15.77 million paid international subscribers, versus the 7.2 million Wall Street expected. It said it expects to add 7.5 million global subscribers in Q2, but "given the uncertainty on home confinement timing, this is mostly guesswork.

"The actual Q2 numbers could end up well below or well above that depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown," Netflix said.

"Hopefully, progress against the virus will allow governments to lift the home confinement soon. As that happens, we expect viewing and growth to decline," the company said. 

A stronger U.S. dollar is impacting international pricing

Netflix expects a stronger U.S. dollar, partly due to the pandemic, to have a drag on international revenue growth.

The company pointed toward Brazil as an example, where its standard subscription plan used to cost $8.50 per month but is now $6.50 per month due to April 2020 foreign exchange rates.

That decline in the average subscription price offsets its membership growth, Netflix said.

Coronavirus paused production

The Covid-19 pandemic has also caused Netflix to pause the majority of its production around the world due to government lockdowns and recommendations.

Netflix said thwill only have a "modest" impact on its new releases in Q2, though the company can't anticipate when production will resume. 

"No one knows how long it will be until we can safely restart physical production in various countries, and, once we can, what international travel will be possible, and how negotiations for various resources (e.g., talent, stages, and post-production) will play out," Netflix said. 

Shares of the streaming platform jumped 10% before steadying around a 1% bump in after-hours trading.

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How Big Tech is holding up during the coronavirus crisis
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