Netflix Q2 Commentary: Subscriber Growth Is Even Worse Than It Looks

Cheyne Gateley/Variety Intelligence Platform

The video streaming market’s leader isn’t looking so mighty at the moment.  

That’s because Netflix just reported a relatively underwhelming Q2 ’21 subscriber total of 209.2 million. Yes, the 1.5 million subscriber additions it made over the April-June period surpassed the 1 million it had guided for and consensus estimate of 1.12 million.  

But that guidance and estimate seemed like low bars Netflix could beat easily even after its monstrous H1 ’20 (when it added over 25 million subs). For example, for the four Q2s in years prior to 2020, Netflix had not guided for less than 3 million subscriber additions.  

Yes, Netflix had an unprecedented H1 ’20 due to COVID lockdowns. But keep in mind Netflix during the whole year of 2020 added about 9 million more subs than it did during all of 2019.  

Netflix has had a big jump in annual net subscriber adds before: The company’s global net sub adds of 2018 were about 7 million more than what they were in 2017, yet Netflix’s Q2 ’19 guidance was still 5 million, only about a million less than the 6.1 million it guided for in Q2 ‘18.   

A bright spot was Netflix's reported Q2 revenue of $7.34 billion, coming ahead of expectations of $7.31 billion. Netflix’s earnings of $2.97 per share fell short of an expected $3.14 figure.  

Some investors seemed to view the revenue beat as a small consolation in a game where accelerating subscriber growth is the ultimate prize. Just observe Netflix’s stock, which fell as much as 4% in after-hours trading.  

It's not particularly surprising that Netflix would have soft Q2 subscriber growth. The company had been saying its great pandemic-fueled subscriber growth during H1 ’20 would likely come at the expense of some 2021 growth, referring to this as a “pull-forward” effect. 

Moreover, VIP last week warned that Netflix shouldn’t be expected to report a subscriber growth rebound in Q2 because the latest April-June period was when states opened vaccine availability to the general public and many U.S. consumers started becoming comfortable with entertainment activities like attending theme parks.   

What was more surprising was how lackluster Netflix’s subscriber additions were in the APAC and EMEA regions, where it is less dominant than it is in the UCAN region. 

The year-over-year growth of Netflix’s APAC subscriber base was about 24%, lower than the 55% YoY growth in the figure in Q2 ’19 (the most recent non-COVID-era Q2). Moreover, Netflix’s YoY growth in EMEA subs was 12%, compared with 41% in Q2 ’19. 

This was despite notable territories in those regions still having suffered from COVID-19 restrictions during Q2.  

For example, the seven-day average for COVID-19 cases in India reached 391,232 on May 8, up 500% from the April 1 figure.  

Delhi, one of the most populous Indian cities, was under complete lockdown from April 19 to May 30. Bars and restaurants there were only allowed to reopen in the second half of June. Districts in the state of Maharashtra, one of the most populous Indian states, allowed movie theaters and restaurants on June 7 to reopen in certain districts after restrictions were imposed in April.  

Sizable countries in Europe, including France and Germany, saw their COVID numbers trend upward between mid-February and mid-April. France closed nonessential businesses and entered its third national lockdown in April, with restrictions easing in late May. The end of May was also when restaurants opened in much of Germany for the first time in months. 

Lockdowns were also recently imposed in other EMEA territories in Africa, where COVID cases have risen for eight consecutive weeks, the World Health Organization reported last week. At the end of May, South Africa returned to a stricter lockdown and nonessential businesses were ordered to close by 10 p.m. 

Suffice it to say there were many other regions that could have helped more strongly counteract the negative impact on subscriber growth U.S. reopenings had (Netflix lost 430,000 subs in its UCAN region in Q2 ’21).  

But Netflix’s subscriber numbers are not only linked to stay-at-home orders. They also partly speak to Netflix’s content slate, which, although it did see big titles like “Fatherhood” (74M Netflix members watched within 28 days of premiere) and “Army of the Dead” (75M) debut during the quarter, was still impacted by COVID-19 production delays.  

The fourth quarter of 2021 could be a particularly strong period for Netflix, as that’s when we will see the debut of big Netflix movies such as “Escape From Spiderhead” (sci-fi film starring Chris Hemsworth) and “Red Notice” (action film featuring Dwayne Johnson and Gal Gadot, with a potential $200M budget).  

Something else that could help Netflix grow internationally is its push to build franchises out of certain IP that show potential to become spectacle TV series or movies. For example, Netflix has already renewed “Bridgerton” (Netflix’s most watched series ever) through season 4 after the first season debuted last December. 

But the bigger question for Netflix now is how much its non-video-streaming endeavors will help differentiate it from competitors in the eyes of consumers. There’s, which might not be a significant needle-mover for Netflix for some time as the company doesn’t appear to want to use it to sell merch for many of its shows at once. 

There's also Netflix’s push into video games, which like movies and series will eventually be available to subscribers at no additional cost, according to the company.  

While many specifics on Netflix’s forthcoming games are scarce, the games will be mobile-device focused, and that could help the company make greater inroads with younger generations. Mobile viewing accounted for 40% of all video consumption among U.S. Gen Z heads of broadband households, Parks Associates reported in October.