Netflix missed its subscriber target by over two million and forecast that it expects to add only a million more in the next quarter, wiping billions off its value. Company executives attempted to make light of the disappointment and see room for continuing growth, talking in terms of 800 million subscribers or more as an addressable market in the longer term.

Netflix fell short of the 210 million subscribers it projected. It had forecast that it would add 6.2 million but ended up gaining 3.98 million, for a total of 207.64 million globally.

Spencer Neumann, the chief financial officer, downplayed the forecast numbers, describing the shortfall as “just some short-term kind of choppiness” and “noise”. He said that as it is a forecast, they are likely to miss every quarter. “It’s just a matter of whether they’re bigger or smaller misses.”

Reed Hastings, the co-founder, chairman and co-chief executive, added: “We had those 10 years where we’re growing smooth as silk and then just a little wobbly right now.”

“I mean, we’ve been competing with Amazon Prime for 13 years, with Hulu for 14 years. It’s always been very competitive with linear TV, too. So there’s no real change that we can detect in the competitive environment. It’s always been high and remains high.”

Yeah, right. Dismissing Disney as a competitor, he said the largest competitor for television viewing time is linear television and the second is YouTube.

The Netflix forecast for the next quarter is nevertheless a rather conservative increase of 1 million, which would be the lowest quarterly gain since 2013. That seems to be setting expectations low so to ensure that they are at least met.

Over the course of 2020, Netflix gained 36.57 million paid subscribers worldwide, including 6.27 million in the United States and Canada.

So it was a disappointment to some investors that Netflix added just under 4 million subscribers in the first quarter of 2021, including less than half a million in the United States and Canada. That is compared to a global gain of 16 million subscribers in the first quarter of 2020.

Netflix Paid Streaming Subscriptions 2018-2021 Q1. Source: informitv Multiscreen Index / company reports.

Company executives attribute this slowing growth to the coronavirus pandemic rather than increased competition. They have consistently warned of a ‘pull forward’ in new subscriptions. In other words, if anyone was thinking of getting Netflix, they were more likely to subscribe during coronavirus restrictions, when they would have more time to watch.

The restrictions also delayed production and the release of new titles, although it also affected other producers and particularly live sports.

The Netflix letter to shareholders claims that the company did not suffer from the emergence and growth of competing online video providers, as it saw similar reductions in new subscribers across regions with different levels of competition.

There is no doubt that Netflix is facing increasing competition, notably from media giants like Disney, while Amazon is also not to be underestimated.

In the second half of 2021, Netflix says subscriber growth will increase as a result of what it describes as a strong slate of productions. That is perhaps placing undue reliance on particular titles to draw new subscribers to Netflix.

The reality is that after an extraordinary year, it looks like subscriber growth is slowing. That is to be expected. The larger the subscriber base, the higher the churn and the more difficult it is to attract new subscribers.

The North American market is reaching subscriber saturation, at levels of adoption comparable to those paying for television. There is clearly more scope for growth in the rest of the world, but numbers have not risen as rapidly as some might expect.

While Netflix gained nearly 15 million subscribers in the Europe, Middle East and Africa in 2020, it added fewer than 10 million subscribers across the Asia Pacific and just over 6 million in Latin America.

Netflix says that subscriber figures tell only part of the story and that it is important to also focus on engagement. Yet the company has consistently emphasised headline growth in subscriber numbers and says very little about levels of usage.

Netflix says it is less than 10% of television screen time in the United States. Nielsen puts it at about 7%. That is still a tremendous achievement. If Netflix were a television channel it would be among the most watched channels. However, Netflix is also taking viewing time that would previously have been devoted to discs and before that videotapes.

Netflix also has growing revenue, income and free cash flow. In 2020, Netflix generated nearly $25 billion in revenue, and $2.7 billion in net income. In the first quarter of 2021, net income was $1.7 billion, compared to $0.7 billion for the first quarter a year previously and $0.3 billion for the same quarter the year before that. The company expects to be about cash flow breakeven in 2021 and sustainably free cash flow positive and growing beyond that.

Reed Hastings does not seem to see any limit to growth, talking in terms of the 800 million or so subscription television households outside China.