Netflix Gains as Viewers Stay In; Sarandos Now Co-CEO

Netflix NFLX posted a second straight quarter with impressive subscriber growth as people continue to demand entertainment options at home during the COVID-19 pandemic. Despite subscriber additions coming well ahead our estimate and guidance, revenue was in line with our projections for the quarter. We still view much of the subscriber beat as a pull-forward of longer-term growth and expect the global rollout of Disney+ and the recent launches of Peacock and HBO Max to increase churn. However, we are raising our FVE to $200 from $160 to account for the revenue impact of the larger subscriber base and slightly faster margin expansion than previously expected.

Netflix also announced the appointment of chief content officer Ted Sarandos as co-CEO with the firm’s longtime leader, Reed Hastings. While Hastings stressed his intention to stay on for another decade, we view the elevation of Sarandos as a sign that Hastings may push off more of the day-to-day operations onto Sarandos, who will retain his CCO title. Hastings will likely spend more of his time on strategy and new initiatives for the firm.

Netflix posted much stronger-than-expected subscriber growth (10.1 million net adds, including 2.9 million in the U.S., versus guidance of 7.5 million). The company no longer provides guidance for both domestic and international net adds. Netflix continues to expand its streaming base, ending the quarter with more than 193 million global paid subscribers, up from 152 million a year ago. Growth in the quarter was spread across the four global regions, with each handily beating their comps from a year ago. However, the U.S. was the only region to post more customer additions quarter over quarter as the lockdown has lingered in the U.S. longer than in other countries. We view the third quarter guidance for 2.5 million net adds as a little conservative, but the number does reinforce management’s contention that the second half of the year will be weak.

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