Netflix shares slide after it loses 200,000 subscribers
Netflix shares are sinking sharply after the streaming service suffered its first subscriber loss in more than a decade.
The company's customer base fell by 200,000 subscribers during the January-March period, the company disclosed Tuesday in releasing its latest earnings report. Netflix's stock price plunged more than 37% to $219.50 in early trading on Wednesday as investors fretted about the company's slowing growth and mounting competition.
UBS analysts downgraded their rating on Netflix's stock from "buy" to "neutral," citing fierce competition in streaming, economic headwinds and market saturation.
The decline in subscribers is the first since Netflix became available throughout most of the world outside of China six years ago. The drop this year stemmed in part from Netflix's decision to withdraw from Russia to protest the war against Ukraine, resulting in a loss of 700,000 subscribers.
Even so, Netflix acknowledged its problems are deep-rooted by projecting a loss of another 2 million subscribers during the April-June period.
The company reported revenue of nearly $7.9 billion in the period, falling slightly short of Wall Street forecasts. For the current quarter ending in July, Netflix said it expects revenue of just over $8 billion. Analysts surveyed by Zacks had expected revenue of $8.2 billion.
A series of declines
If the stock drop extends into Wednesday's regular trading session, Netflix shares will have lost more than half of 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 unveiled plans to begin charging separately for its then-nascent streaming service, which had been bundled for free with its traditional DVD-by-mail service. The customer backlash to that move elicited an apology from Netflix CEO Reed Hastings for botching the execution of the spin-off.
The service also saw a decline in U.S. subscribers in 2019.
But the latest subscriber loss was far worse than a forecast by Netflix management for a conservative gain of 2.5 million subscribers. The news deepens troubles that have been mounting for the streaming since a surge of signups from a captive audience during the pandemic began to slow.
Netflix is losing subscribers amid rising competition in online programming from Amazon, Apple, Disney and numerous other services.
The streaming industry "is more saturated and filled with a multitude of services offering compelling content at prices lower than NFLX's, including mega-tech platforms with deep pockets," Oppenheimer analysts wrote in a note.
Slowing growth
It marks the fourth time in the last five quarters that Netflix's subscriber growth has fallen below the gains of the previous year. Now investors fear that its streaming service may be mired in a malaise as it faces stiffening competition from well-funded rivals such as Apple and Walt Disney.
"Netflix is still the single most dominant player in the streaming industry, especially in demand for original content," noted Parrot Analytics, a company that analyzes streaming content, in an email. "But as several nearly century-old firms erode the incumbent's market share, Netflix is reaching a point where it needs to focus more on subscriber retention, especially in North America, while its legacy media-backed competitors Disney+ and HBO Max continue focusing on subscriber growth in key international territories."
Last year, Netflix had its weakest annual gain since 2016, adding 18.2 million subscribers. That contrasted with an increase of 36 million subscribers during 2020 when people were corralled at home and starved for entertainment, which Netflix was able to quickly and easily provide with its stockpile of original programming.
Password crackdown
Netflix has previously predicted that it will regain its momentum, but is now starting to acknowledge that it's mired in a serious malaise that requires action. Among other things, Netflix signaled that it will likely crack down on the sharing of subscriber passwords that has enabled multiple households to access its service from a single account.
The Los Gatos, California, company estimated that about 100 million households worldwide are feeding off the same account, including 30 million in the U.S. and Canada — its largest market. To stop the practice and prod more people to pay for their own accounts, Netflix indicated it may expand a test introduced last month in Chile, Peru and Costa Rica that allows subscribers to add up to two people living outside their households to their accounts for an additional fee of $2.99 USD.
"Account sharing as a percentage of our paying membership hasn't changed much over the years, but, coupled with the first factor, means it's harder to grow membership in many markets — an issue that was obscured by our COVID growth," Netflix said Tuesday in a letter to its shareholders.
Netflix ended March with 221.6 million worldwide subscribers.
With the pandemic easing, people have been finding other things to do, and other video streaming services are working hard to lure new viewers with their own award-winning programming. Apple, for instance, held the exclusive streaming rights to "CODA," which eclipsed Netflix's "Power of The Dog," among other movies, to win Best Picture at last month's Academy Awards.
Escalating inflation over the past year has also squeezed household budgets, leading more consumers to rein in their spending on discretionary items. Despite that pressure, Netflix recently raised its prices in the U.S., where it has its greatest household penetration — and where it's had the most trouble finding more subscribers. In the most recent quarter, Netflix lost 640,000 subscribers in the U.S. and Canada, prompting management to point out that most of its future growth will come in international markets.
Netflix also is trying to give people another reason to subscribe by adding video games at no extra charge — a feature that began to roll out last year.