Netflix shares plummet after the streaming service suffered its first subscriber loss in more than a decade.
The company’s subscriber base fell by 200,000 subscribers from January to March, the company said Tuesday when it released its latest earnings report. Netflix’s share price plummeted more than 37% to $219.50 in early trade Wednesday as investors worried about the company’s slowing growth and mounting competition.
Analysts at UBS downgraded their rating on Netflix stock to neutral from buy, citing stiff streaming competition, economic headwinds and market saturation.
The drop in subscribers is the first since Netflix became available in most parts of the world outside of China six years ago. The drop this year was partly due to Netflix’s decision to pull out of Russia to protest the war in Ukraine, resulting in a loss of 700,000 subscribers.
Still, Netflix acknowledged its problems run deep, forecasting a loss of another 2 million subscribers in the April-June period.
The company reported nearly $7.9 billion in revenue during that period, slightly below Wall Street forecasts. For the current quarter, which ends in July, Netflix expects revenue of just over $8 billion. Analysts polled by Zacks had expected sales of $8.2 billion.
MoneyWatch: Subscription streaming services raise prices 04:22
A series of declines
If the stock decline extends into Wednesday’s regular trading session, Netflix shares will have lost more than half their value so far this year — wiping out about $150 billion in shareholder wealth in less than four months.
Netflix also lost 800,000 subscribers in 2011 after it revealed plans to charge separate fees for its then-nascent streaming service, which had been bundled for free with its traditional DVD-by-mail service. Customer reaction to the move prompted an apology from Netflix CEO Reed Hastings for botching the spin-off execution.
The service also saw a drop in US subscribers in 2019.
But the latest subscriber drop was far worse than Netflix management’s forecast of a conservative gain of 2.5 million subscribers. The news deepens problems that have been mounting for streaming since a wave of sign-ups from a captive audience began to slow during the pandemic.
Netflix is losing subscribers amid increasing competition from online programming from Amazon, Apple, Disney, and numerous other services.
The streaming industry “is more saturated and filled with a variety of services offering compelling content at prices lower than NFLX, including mega-tech platforms with deep pockets,” Oppenheimer analysts wrote in a note.
Slowed growth
It’s the fourth time in the past five quarters that Netflix’s subscriber growth has fallen below last year’s gains. Now investors worry that its streaming service could be in trouble as it faces increasing competition from well-funded rivals like Apple and Walt Disney.
“Netflix is still the dominant single player in the streaming industry, particularly in demand for original content,” noted Parrot Analytics, a company that analyzes streaming content, in an email. “But while several nearly-century-old companies are eroding the incumbent’s market share, Netflix is reaching a point where it needs to focus more on subscriber retention, particularly in North America, while its legacy, media-backed rivals Disney+ and HBO Max continue to thrive Subscriber focused growth in key international territories.”
Last year, Netflix had its weakest annual gain since 2016, with 18.2 million subscribers. That compares to a surge of 36 million subscribers in 2020, when people were locked in at home and starved for entertainment, which Netflix’s stash of original programming was fast-tracking and could easily provide.
Password Raid
Netflix has previously predicted it will regain momentum, but is now beginning to acknowledge that it is in a serious malaise that requires action. Among other things, Netflix signaled that it is likely to crack down on the sharing of subscriber passwords that have allowed multiple households to access its service from a single account.
The Los Gatos, California-based company estimates that around 100 million homes worldwide dine from the same account, including 30 million in the US and Canada — its largest market. To stop the practice and get more people paying for their own accounts, Netflix said it could expand a test introduced in Chile, Peru and Costa Rica last month that allows subscribers to charge their accounts up to add two people living outside their household additional fee of $2.99.
“Account sharing as a percentage of our paying membership hasn’t changed significantly over the years, but combined with the first factor, this means that in many markets it’s harder to grow membership – an issue that’s been masked by our COVID growth.” was made,” Netflix said Tuesday in a letter to its shareholders.
Netflix ended March with 221.6 million subscribers worldwide.
As the pandemic has abated, people have found other things to do, and other video streaming services are working hard to attract new viewers with their own award-winning programming. Apple, for example, held the exclusive streaming rights to “CODA,” which eclipsed Netflix’s “Power of The Dog,” among others, and won Best Picture at last month’s Academy Awards.
Escalating inflation over the past year has also squeezed household budgets, prompting more consumers to rein in spending on consumer goods. Despite these pressures, Netflix recently increased its prices in the US, where it has the greatest household penetration — and where it’s had the most trouble finding more subscribers. Netflix lost 640,000 subscribers in the U.S. and Canada last quarter, prompting management to indicate that most of its future growth will come from international markets.
Netflix is also trying to give people another reason to subscribe by adding video games at no extra charge – a feature it introduced last year.