Netflix shares drop 25pc after losing subscribers for first time in a decade

20 Apr 2022

Image: © Kaspars Grinvalds/Stock.adobe.com

The company said factors such as suspending its services in Russia, increased competition and account sharing contributed to its slow revenue growth and subscriber decline.

Netflix has reported a loss of around 200,000 subscribers in the first quarter of the year – the first time the streaming giant has lost subscribers in more than a decade.

In a letter to shareholders announcing its Q1 earnings, Netflix said the suspension of its service in Russia and the “winding-down of all paid Russian memberships” impacted this decline. The company said that without this factor, paid net additions would have been 500,000.

Future Human

However, the streaming giant previously predicted a net addition of 2.5m subscribers for this quarter, which had underwhelmed shareholders at the time.

Netflix recorded revenue of around $7.87bn for the first quarter of the year, which is a year-on-year increase of 9.8pc. The company noted that its revenue growth has “slowed considerably”, as its growth in the previous quarter was 16pc.

The slow revenue growth, combined with the unexpected loss in subscribers, has underwhelmed shareholders and fallen short of expectations. CNBC reported that Netflix shares dropped 25pc after its earnings report was published yesterday (19 April).

The company said growing competition contributed to the results as “traditional entertainment companies” enter the streaming market. For example, Disney+ added 11.8m new subscribers last quarter to reach 129.8m, catching up to Netflix’s 221.6m subscribers.

In addition, Netflix cited poor economic growth, inflation and continued disruption from the Covid-19 pandemic as impacting its latest results.

The company also estimates that from its 222m paying households, its service is being shared to roughly another 100m homes, making it “harder to grow membership in many markets”.

Netflix said it will now focus on how to “monetise sharing” as a potential short to mid-term opportunity. Netflix co-CEO Reed Hastings also said in an earnings call that the company is now “open” to add lower-priced subscription tiers with ads, despite the company resisting adverts for years.

The streaming giant added that much of its growth in the longer term will come from outside the US. It has recently been looking to Asia to drive new subscribers and said in the earnings report that it has seen “nice growth” in markets such as Japan, India, Philippines, Thailand and Taiwan.

Netflix said it is planning to improve the quality of its programming and recommendations, “which is what our members value most”. Recently released programmes such as Inventing Anna and the second season of Bridgerton saw high view numbers.

Last month, Netflix announced a price hike for subscribers in Ireland and other markets, with an increase in all subscription options including a €3 rise for its premium package.

At the time, a spokesperson for Netflix told media outlets that the updated prices “reflect the investment we have made in our service and catalogue” and will allow the company to continue making films and TV shows such as The Crown and Vikings: Valhalla.

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Leigh Mc Gowran is a journalist with Silicon Republic

editorial@siliconrepublic.com