Netflix suffers the first loss of subscribers in a decade | Economy and Business News

Netflix Inc says inflation, the war in Ukraine and fierce competition contributed to the loss of subscribers for the first time in more than a decade and predicted deeper losses to come, marking an abrupt change in a company’s fortunes. of transmission that has prospered during the pandemic.

The company said it lost 200,000 subscribers in its first quarter, well below its forecast of adding 2.5 million subscribers. The suspension of service in Russia after the invasion of Ukraine took its toll, resulting in the loss of 700,000 members.

Wall Street sent Netflix shares down 26 percent after the bell on Tuesday and wiped about $40 billion from its market value. Since warning in January of weak subscriber growth, the company has lost nearly half its value.

Lagging subscriber growth is prompting Netflix to consider offering a cheaper, ad-supported version of the service, citing the success of similar offerings from rivals HBO Max and Disney+.

“Those who have followed Netflix know that I have been against the complexity of advertising and am a big fan of the simplicity of subscription,” said Netflix CEO Reed Hastings. “But as much of a fan of that as I am, I’m a bigger fan of consumer choice.”

Netflix offered a gloomy prediction for the spring quarter, predicting it would lose 2 million subscribers, despite the return of long-awaited series like Stranger Things and Ozark and the debut of the film The Gray Man, starring Chris Evans and Ryan Gosling. Wall Street targeted 227 million for the second quarter, according to Refinitiv data.

The downdraft caught up with other streaming video-related stocks, with Roku down more than 6 percent, Walt Disney down 5 percent and Warner Bros Discovery down 3.5 percent.

Hastings told investors the pandemic had “created a lot of noise,” making it difficult for the company to interpret the ups and downs of its subscription business over the past two years. Now, it seems the culprit is a combination of competition and the number of accounts sharing passwords, making growth difficult.

“When we were growing rapidly, working on that wasn’t a high priority,” Hastings said of the account swap in comments during Netflix’s investor video. “And now we are working very hard on it.”

confluence of events

Netflix’s first-quarter revenue grew 10 percent to $7.87 billion, slightly below Wall Street forecasts. It reported net earnings per share of $3.53, beating the Wall Street consensus of $2.89.

While the company remains optimistic about the future of streaming, it blamed the growth slowdown on a number of factors, including the speed at which consumers are adopting on-demand services, a growing number of competitors and a sluggish economy.

Account sharing is a long-standing practice, though Netflix is ​​exploring ways to earn revenue from the 100 million households that watch Netflix through shared accounts, including 30 million in the United States and Canada.

This confluence of factors resulted in Netflix reporting customer loss for the first time since October 2011, taking Wall Street by surprise.

“They suffered from a combination of near saturation, inflation, higher prices, the war in Ukraine and competition,” said Wedbush analyst Michael Pachter. “I don’t think any of us expected everything to happen at once.”

The world’s dominant streaming service was expected to see slowing growth, amid intense competition from established rivals like Amazon.com, traditional media companies like Walt Disney and newly formed Warner Bros Discovery, and newcomers like Apple. inc.

Streaming services spent $50 billion on new content last year, in a bid to attract or retain subscribers, according to researcher Ampere Analysis. That’s a 50 percent increase from 2019, when many of the newer streaming services launched, indicating the rapid escalation of so-called “streaming wars.”

Netflix noted that despite intensifying competition, its share of TV viewing in the US has remained steady according to Nielsen, a benchmark for subscriber satisfaction and retention.

As growth slows in mature markets like the US, Netflix is ​​increasingly focusing on other parts of the world and investing in local language content.

“While hundreds of millions of households pay for Netflix, more than half of the world’s broadband households still do not, which represents enormous potential for future growth,” the company said in a statement.

Benchmark analyst Matthew Harrigan warned that the uncertain global economy “may emerge as a drag” on membership growth and Netflix’s ability to continue raising prices as competition intensifies.

new competition

Streaming services aren’t the only form of entertainment competing for consumers’ time. Deloitte’s latest Digital Media Trends survey, published in late March, revealed that Generation Z, those consumers aged 14 to 25, spend more time playing games than watching movies or TV series at home or even listening to music.

Most Gen Z and Millennial consumers surveyed said they spend more time watching user-created videos like those on TikTok and YouTube than they do watching movies or shows on a streaming service.

One market watcher said Netflix shares have benefited from expectations of perpetual growth.

“Today’s report shows there is a limit to that long-term bullish thesis,” said David Keller, chief market strategist at StockCharts.com.

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