Netflix suffered its first loss of subscribers in more than a decade, sending its shares tumbling 25% in extended trading amid fears the pioneering streaming service may have already seen its best days.
The company’s customer base fell by 200,000 subscribers in the January-March period, according to its quarterly earnings report released on Tuesday. It’s the first time Netflix subscribers have fallen since the streaming service became available in most of the world outside of China six years ago. This year’s decline stems in part from Netflix’s decision to pull out of Russia in protest against the war on Ukraine, resulting in a loss of 700,000 subscribers.
Netflix has acknowledged its deep-rooted problems by projecting a loss of an additional 2 million subscribers in the April-June period.
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 an estimated $150 billion in shareholder wealth in less than four months.
Netflix hopes to turn the tide by taking steps it has previously resisted, including blocking account sharing and introducing a cheaper — and ad-supported — version of its service.
Aptus Capital Advisors analyst David Wagner said it was now clear Netflix was facing a daunting challenge. “They’re in no-(wo)man’s land,” Wagner wrote in a research note Tuesday.
Netflix suffered its biggest hit since losing 800,000 subscribers in 2011 – the result of unveiled plans to start separately billing its then fledgling streaming service, which had been bundled free with its traditional DVD-by-mail service. Customer reaction to the move prompted an apology from Netflix CEO Reed Hastings for botching the spinoff’s execution.
The latest subscriber loss was far worse than Netflix management’s forecast for a cautious gain of 2.5 million subscribers. The news compounds problems that have been piling up for streaming since a surge in sign-ups from a captive audience during the pandemic began to slow.
It’s the fourth time in the past five quarters that Netflix’s subscriber growth has fallen below year-ago gains, a malaise that’s been amplified by tougher competition from well-funded rivals such as Apple. and Walt Disney.
The setback follows the company’s addition of 18.2 million subscribers in 2021, its lowest annual growth since 2016. This contrasts with an increase of 36 million subscribers in 2020 when people were locked down at home. home and starved for entertainment, which Netflix was able to quickly and easily. provide with its stock of original programming.
Netflix previously predicted it would regain momentum, but on Tuesday faced the issues that were bogging it down. “COVID has created a lot of noise about how to read the situation,” Hastings said during a videoconference reviewing the latest numbers.
Among other things, Hastings confirmed that Netflix will start cracking down on the sharing of subscriber passwords that allowed multiple households to access its service from a single account, with changes likely to roll out at course of the next year.
The Los Gatos, California-based company estimated that around 100 million households worldwide watch its service for free using a friend or other family member’s account, including 30 million in the United States. and in Canada. “It’s over 100 million households that already choose to watch Netflix,” Hastings said. “They love the service. We just have to get paid to some degree for them.
To end this practice and entice more people to pay for their own accounts, Netflix said it will expand a trial introduced last month in Chile, Peru and Costa Rica that allows subscribers to add up to two people living outside their household to their accounts for an additional fee.
Netflix ended March with 221.6 million subscribers worldwide. Slowing subscriber numbers weighed on Netflix’s finances in the first quarter when the company’s profit fell 6% from a year ago to $1.6 billion, or $3.53 a year. stock. Revenue rose 10% from a year ago to nearly $7.9 billion.
With the pandemic easing, 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, had exclusive streaming rights to “CODA,” which eclipsed Netflix’s “Power of The Dog,” among other films, to win best picture at last month’s Oscars.
Escalating inflation over the past year has also tightened household budgets, prompting more consumers to limit spending on discretionary items. Despite this pressure, Netflix recently hiked prices in the United States, where it has its greatest household penetration – and where it has struggled the most to find more subscribers. In the last quarter, Netflix lost 640,000 subscribers in the United States and Canada, prompting management to point out 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 cost – a feature that started rolling out last year.
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