The share price of Netflix, one of the world’s leading subscription streaming service and production company, fell by 35% at the close of trading on Wednesday as investors reacted negatively to its first Quarter 2022 report, which revealed that the firm lost approximately 200,000 subscribers in the quarter when it was projected to 2.5 million subscribers.
This is the first time Netflix is recording a decline in the number of subscribers in over 10 years. The company blamed the decline on stiffer competition, the inability to expand in some territories due to technological limitations and account sharing. It also blamed inflation and the war in Ukraine as part of the reasons for the loss of its subscribers.
In a letter to its shareholders, the firm stated, “However, our relatively high household penetration – when including the large number of households sharing accounts, combined with competition, is creating revenue growth headwinds.”
What you should know
Netflix explained that it expects to lose another 2 million subscribers in the second quarter of 2022. It further explained that the loss in subscribers meant that 222 million households are paying for Netflix, but over 100 million more are sharing those accounts, who are not paying for its services.
To help boost its subscriber count, the firm is considering offering cheaper ad-supported plans in the coming years. In the company’s most recent earnings call, co-CEO Reed Hastings revealed that the streaming giant is currently working on the offering and that it will be finalizing details for those plans “over the next year or two.”
Hastings also said he finds ads complex and he’s a huge fan of the simplicity of subscriptions but giving consumers who don’t mind watching ads the option to pay less “makes a lot of sense.”
Despite decline in subscribers, Netflix’s first-quarter revenue grew approximately 10% to $7.87 billion compared to the first quarter of 2021 where it generated $7.16 billion and added 3.98 million paid subscribers.
The firm also reported per-share net earnings of $3.53, beating Wall Street’s consensus of $2.89, according to Refinitiv survey of analysts.
The company explained that the suspension of its service in Russia and the winding-down of all Russian paid memberships resulted in a loss of 700,000 subscribers.
It also mentioned that excluding that impact, it would have seen 500,000 net additions during the most recent quarter.
Despite increase in revenue, the firm’s net income declined against Q1 2021 by 6.44%, from $1.71 billion in Q1 2021 to $1.59 billion in Q2 2022. This was majorly attributable to a decline in interest and other income by 27.29%
According to the outlook portion of the letter to investors, Netflix stated, “Our plan is to reaccelerate our viewing and revenue growth by continuing to improve all aspects of Netflix – in particular the quality of our programming and recommendations, which is what our members value most.”
Year-to-Date (YtD), Netflix’s share price is down over 60%, as its market capitalization currently stands at 151.77 billion.
The company added that it’s “doubling down on story development and creative excellence,” and that it launched the “double thumbs up,” tool that will allow members to “better express what they truly love versus simply like.”
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