Correction: An earlier version of this article included an incorrect reference to fourth quarter earnings and inaccurate earnings and revenue.
Netflix’s Evil 2022 Just Had a Lot worse.
After shares plunged earlier this year on concerns about subscriber growth, the streaming leader said that lost subscribers when it reported first-quarter earnings on Tuesday.
Netflix (NFLX) now has 221.6 million subscribers worldwide. It lost 200,000 subscribers in the first quarter of 2022, the company reported Tuesday, adding that it expects to lose another two million in the second quarter. The service was expected to add 2.5 million subscribers. in the first three months of the year.
Netflix shares fell 35% on Wednesday, instantly wiping $50 billion off the company’s value.
Netflix’s first quarter profit was $1.6 billion, down from $1.7 billion in the prior year quarter. Revenue increased nearly 10% to $7.9 billion.
It cannot be overstated how bad this report is for the streaming king. The company’s shares are down more than 40% so far this year, and going into earnings, investors were very concerned about its growth. The company has not lost subscribers in more than a decade.
In its letter to investors, the company said that since launching streaming in 2007, the company has “operated under the firm belief that on-demand, Internet-delivered entertainment will replace linear television.” But, he added, in the short term “we’re not growing revenue as fast as we’d like.”
Netflix said the pandemic “clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowdown in 2021 was due to the spread of Covid.”
But there are many different factors behind its subscriber stagnation, including competition from traditional media companies that have entered the streaming market in recent years, as well as widespread password sharing.
“In addition to our 222 million paying households, we estimate that Netflix is shared with more than 100 million additional households, including more than 30 million in the [United States/Canada] region,” the company said.
The company also blamed “macro factors” that are affecting many companies right now, such as “slow economic growth, rising inflation, geopolitical events such as the Russian invasion of Ukraine, and some ongoing Covid disruptions will probably be too.” have an impact.”
Netflix said leaving Russia cost the company 700,000 subscribers.
The company’s poor report is likely to shake up the streaming market as many other companies have changed their business strategies to compete with Netflix.
Disney (DIS), for example, one of Netflix’s biggest rivals, was down about 5% on Tuesday night.
Netflix told investors Tuesday that it plans to turn the tide by doing what it has always done: improving service.
“Our plan is to re-accelerate our viewing and revenue growth by continuing to improve all aspects of Netflix, particularly the quality of our programming and recommendations, which is what our members value most,” the company said.
The company added that it is “doubling down on story development and creative excellence” and has launched the “double approval” tool that will allow members to “better express what they really love rather than just liking.”
Netflix also said it will focus more on “how best to monetize the exchange” in terms of passwords.
“Sharing probably helped fuel our growth by getting more people to use and enjoy Netflix. And we’ve always tried to make sharing within a member’s home easy, with features like profiles and multiple streams,” the company said. “While these have been very popular, they have created confusion about when and how Netflix can be shared with other households.”
The company said last month that for the past year, it has been working on ways to “allow members who share outside their home to do so easily and securely, while paying a little more.”
“While we won’t be able to monetize everything right now, we think it’s a great opportunity in the short to medium term,” he said.
Another place that could help increase revenue and attract more subscribers to the service is advertising.
Netflix CEO Reed Hastings has always been allergic to the idea of having commercials on the platform, but on Tuesday’s call with analysts he mentioned that it could be a possibility in the future.
“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription. But as much of a fan of that as I am, I’m a bigger fan of consumer choice,” Hastings said on the post-earnings call. “And allowing consumers who like the lower price and tolerate advertising to get what they want makes a lot of sense.”
He added that the company is looking at that now and trying to figure it out “over the next year or two.”
“Think of us fairly open to offering even lower prices with advertising,” Hastings said.
Despite a dramatic slowdown in growth that calls its strategy into question, Netflix remained defiant.
“This focus on continuous improvement has served us well for the past 25 years,” Netflix said. “That’s why we’re now the world’s largest subscription streaming service across all key metrics: paid memberships, engagement, revenue and earnings.”