Netflix added 2.2 million subscribers in the third quarter of 2020. That was slightly below its own forecast, which was a lot lower than the gains it saw in the first two quarters. Netflix added 28.1 million subscribers in the first nine months of 2020, compared to 27.8 million across the whole of 2019. With over 195 million subscribers worldwide, Netflix expects to pass 200 million by the end of 2020. That still did not satisfy investors, although its stock continues to rise year on year.
If the quarter had been just two days longer, Netflix would have hit its subscriber forecast. Netflix had forecast it would add 2.5 million subscribers in the third quarter, compared to its gain of 6.8 million in the same quarter the previous year and 6.1 million for the third quarter the year before that.
That followed exceptional gains of 15.8 million in the first quarter and 10.1 million in the second quarter of 2020.
Netflix correctly anticipated that more people staying at home due to coronavirus restrictions, together with postponement of many sports events, would result in a ‘pull forward’ of new subscribers. Yet Netflix also faced increased competition from other services, including Disney+, HBO Max and Peacock.
The Asia Pacific region contributed 46% of net additions to Netflix subscribers in the third quarter. That said, it represents a vast market, so adding a million is not that remarkable. Netflix is considering offering its service for free for a weekend in India to stimulate subscriber signups.
Netflix meanwhile added only 177,000 net subscribers in the United States and Canada in the third quarter, taking its total there to 73.08 million.
“For at least the last 5 years, we’ve realized there are no gimmicks. There are no techniques. It’s fundamentally about member satisfaction,” said Reed Hastings, the co-founder, chairman and co-chief executive of Netflix. “The fundamental for us is member joy, which we look at how much of your viewing time do you choose to spend with Netflix, how many repeat days, what’s retention, all of those aspects. And so we’re really focused on the fundamentals of that pleasing and what does seem to please our members, and that’s how we grow.”
Netflix is starting to generate cash and produced free cash flow of $1.26 billion in the third quarter on revenues of $6.44 billion.
“We’re not yet sustainably free cash flow positive or ready to call that, but we’re rapidly closing in,” said Spencer Nuemann, the chief financial officer. “But we’re still, obviously, based on our guidance, probably a couple of years away at least from sustainably being free cash flow positive.”
The company is forecasting it will add a further 6.0 million subscribers in the fourth quarter of 2020. That would give it a total of 34 million net additions in 2020, compared to its previous record of 28.6 million in 2018. That would see Netflix pass 200 million subscribers by the end of 2020.