Netflix hit by subscriber loss, may offer ad-supported plans
SAN FRANCISCO: Netflix Inc said inflation, the war in Ukraine, and fierce competition contributed to a loss of subscribers for the first time in more than a decade and predicted deeper losses ahead, marking an abrupt shift in fortune for a streaming company that thrived during the pandemic.
The company said it lost 200,000 subscribers in its first quarter. It has forecast adding 2.5 million subscribers. Suspending service in Russia after the Ukraine invasion took a toll, resulting in the loss of 700,000 members.
Netflix’s stock tumbled 26% on Wall Street after the bell on Tuesday and erased about $40 billion of its stock market value. Since it warned in January of weak subscriber growth, the company has lost nearly half of its value.
The lagging subscriber growth is prompting Netflix to contemplate offering a lowerpriced version of the service with advertising, citing the success of similar offerings from rivals HBO Max and Disney+.
“Those who have followed Netflix know that I’ve been against the complexity of advertising, and a big fan of the simplicity of subscription,” said Netflix chief executive officer Reed Hastings. “However, as much as I’m a fan of that, I’m a bigger fan of consumer choice.”
Netflix offered a gloomy prediction for the spring quarter, forecasting it would lose 2 million subscribers, despite the return of such hotly anticipated series as “Stranger Things” and “Ozark” and the debut of the film “The Grey Man,” starring Chris Evans and Ryan Gosling. Wall Street targeted 227 million for the second quarter, according to Refinitiv data.
The downdraft caught other video streaming-related stocks, with Roku dropping over 6%, Walt Disney falling 5% and Warner Bros Discovery down 3.5%.
Hastings said the pandemic had “created a lot of noise”, making it difficult for the company to interpret the surge and ebb of its subscription business over the last two years, It appears the culprit is a combination of competition and the number of accounts sharing passwords, making it harder to grow.
Account-sharing is a longstanding practice, though Netflix is exploring ways to derive revenue from the 100 million households watching Netflix through shared accounts, including 30 million in the US and Canada.
Netflix’s first-quarter revenue grew 10% to $7.87 billion, slightly below Wall Street’s forecasts. It reported per-share net earnings of $3.53, beating the Wall Street consensus of $2.89.
The company remains bullish on the future of streaming, but blamed its slowing growth on a number of factors such as the rate at which consumers adopt on-demand services, a growing number of competitors, and a sluggish economy.