Benefiting from the huge amount of people staying at home because of COVID-19, Netflix added 15.8 million subscribers in the March quarter and is projecting another 7.5 million in the June quarter, this is well above what the market was expecting before the pandemic.
Similar for Intel, benefiting from the work from home trend and increasing online activity, their revenue from laptop and server CPU is off the roof in 1H.
Given the short term boost, there are worries that both companies are just seeing “demand pull forward” with potential shortfall coming down the road once things back to normal.
However, not all “demand pull forward” are created equal. And for Netflix, the more accurate term for it is “penetration acceleration”
In Intel’s case, “demand pull forward” means customers buying PC/server earlier than they were planning to, it is reasonable to worry about future revenue shortfall. Customers who just accelerated the purchase of new PCs/Servers are unlikely to do it again any time soon. The company is essentially catching the same revenue opportunity, just moving future revenue forward.
In the Netflix case, “demand pull forward” means customers signing up for the service earlier than they were planning to. However, in this case, no future revenue is sacrificed in the process. The increase in revenue for the current quarter does not reduce their chance to generate revenue in the future. Of course one can argue if these new customers will stay, but that is a question on “customer retention”, a completely separate issue.
As investors, we would love to see this kind of “demand pull forward” for Netflix. In fact, we would be thrilled to see Netflix pulling all future years of potential net adds into the current quarter if that’s even possible, and let others worry about “future shortfall”. Instead of “demand pull forward”, we call that “penetration acceleration.”
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