(SAN FRANCISCO) — Netflix suffered its first subscriber loss in more than a decade, causing its shares to plunge 25% in extended trading amid concerns that the pioneering 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’s the first time that Netflix’s subscribers have fallen since the streaming service 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.
Netflix admitted that its problems were deep-rooted and projected a loss in subscribers of 2 million during April-June.
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 is hoping to reverse the tide by taking steps it has previously resisted, including blocking the sharing of accounts and introducing a lower-priced — and ad-supported — version of its service.
Aptus Capital Advisors analyst David Wagner said it’s now clear that Netflix is grappling with an imposing challenge. “They are in no-(wo) man’s land,” Wagner wrote in a research note Tuesday.
Netflix absorbed its biggest blow since losing 800,000 subscribers in 2011 — the result of 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. Netflix CEO Reed Hastings apologised for the failure to execute the spinoff due to customer anger.
Netflix Management had predicted a gain of 2.5 million subscribers, but the latest loss was much worse. These news are further signs of the difficulties that have been building for Netflix streaming services since an influx of subscribers from captive audiences during the pandemic.
It marks the fourth time in the last five quarters that Netflix’s subscriber growth has fallen below the gains of the previous year, a malaise that has been magnified by stiffening 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. The contrast is with the increase of 36million subscribers in 2020. This was after the company added 18.2 million new subscribers, its weakest annual growth rate since 2016.
Netflix had previously said it would regain momentum. But on Tuesday, it acknowledged the problems that were causing it to slow down. “COVID created a lot of noise on how to read the situation,” Hastings said in a video conference reviewing the latest numbers.
Hastings said that Netflix will begin cracking down on the sharing subscription passwords which have allowed multiple households to access the service using a single account. Changes are likely to occur over the coming year.
According to Los Gatos’ California company, around 100 million homes worldwide have access to its free service by sharing it with a friend, family member or other relative, which includes 30 million Canadians and 30 million Americans. “”Those are over 100 million households already are choosing to view Netflix,” Hastings said. “They love the service. We’ve just got to get paid at some degree for them.”
Netflix has announced it is expanding a test that was introduced in Chile and Peru last month to allow subscribers to add to their accounts up to 2 people who live outside of their household for an extra fee. This will help to end the practice and encourage more people to buy their own accounts.
Netflix closed March with 221.6 millions worldwide subscribers. The subscriber downturn clipped Netflix’s finances in the first quarter when the company’s profit fell 6% from last year to $1.6 billion, or $3.53 per share. Nearly $7.9 Billion in revenue was a 10% increase over last year.
People are finding new things now that the pandemic is over. Other video streaming platforms have also been working hard to attract more viewers by offering award-winning content. 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.
Inflation has risen rapidly over the last year, which in turn has squeezed household budgets. This is leading consumers to reduce their discretionary spending. 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. Netflix has lost 640,000 subscribers to the U.S. and Canada in its most recent quarter. Management pointed out that it will most likely grow in foreign 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.
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