Netflix collapses 25% after company loses 200,000 subscribers

(SAN FRANCISCO) — Netflix suffered its first subscriber loss in more than a decade, causing its shares to plummet 25% in expanded trading, amid concerns that the groundbreaking streaming service may have already seen its best days.

The company’s customer base fell by 200,000 subscribers during the January-March period, according to its quarterly earnings report released Tuesday. It marks the first time Netflix’s subscriber base has fallen since the streaming service became available in most of the world outside of China six years ago. The decline this year stemmed in part from Netflix’s decision to pull out of Russia to protest the war against Ukraine, which resulted in a loss of 700,000 subscribers.

Netflix acknowledged that the problems are deep-seated by forecasting a loss of an additional 2 million subscribers over 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 about $150 billion in shareholder equity 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 is now clear that Netflix is ​​grappling with an impressive challenge. “They are in no man’s land,” Wagner wrote in a research note Tuesday.

Netflix has taken its biggest blow since losing 800,000 subscribers in 2011 – the result of unveiled plans to start paying separately for its then-emerging streaming service, which was bundled for free with its traditional DVD-by-mail service. The customer’s response to that move prompted an apology from Netflix CEO Reed Hastings for messing up the spin-off’s execution.

The latest subscriber loss was far worse than Netflix management’s prediction of a conservative gain of 2.5 million subscribers. The news magnifies the problems that have arisen for streaming since a wave of captive audience signups began to slow during the pandemic.

It marks the fourth time in the last five quarters that Netflix’s subscriber growth has fallen below the previous year’s profits, a slump exacerbated by increasing 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 weakest annual growth since 2016. That contrasted with an increase of 36 million subscribers in 2020, when people were corralled and starved for entertainment at home. Netflix was able to provide its stock of original programming quickly and easily.

Netflix has previously predicted it will regain its momentum, but faced the issues that held it back on Tuesday. “COVID created a lot of noise about how to read the situation,” Hastings said in a video conference reviewing the latest numbers.

Among other things, Hastings confirmed that Netflix will tackle subscriber password sharing, allowing multiple households to access the service from a single account, with changes likely to roll out over the next year.

The Los Gatos, California company estimates that approximately 100 million households around the world watch the service for free through a friend’s or other family member’s account, including 30 million in the US and Canada. “That’s over 100 million households who already choose to watch Netflix,” Hastings said. “They love the service. We just have to get them paid to some degree.”

To stop the practice and encourage more people to pay for their own bills, Netflix has indicated that it will expand a test launched last month in Chile, Peru and Costa Rica that allows subscribers to add up to two people outside their household to their subscription. bills for an additional payment.

Netflix ended March with 221.6 million subscribers worldwide. The subscriber decline hurt Netflix’s finances in the first quarter as the company’s profits fell 6% from last year to $1.6 billion, or $3.53 per share. Sales were up 10% from last year to nearly $7.9 billion.

As the pandemic subsides, 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. For example, Apple owned the exclusive streaming rights to “CODA,” which eclipsed Netflix’s “Power of The Dog,” among other things, and won Best Picture at last month’s Academy Awards.

The escalating inflation of the past year has also put pressure on household budgets, causing more consumers to rein in their spending on discretionary items. Despite that pressure, Netflix recently raised its prices in the US, where it has the greatest penetration of households and where it struggled most to find more subscribers. In the most recent quarter, Netflix lost 640,000 subscribers in the US and Canada, prompting management to point out that most of its future growth will come in international markets.

Netflix is ​​also trying to give people another reason to subscribe by adding free video games — a feature that started rolling out last year.

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