Netflix’s market value tumbles as it predicts subscriber slowdown
Netflix has stoked fears the pandemicfuelled streaming boom is fizzling out, saying it expects to report the lowest number of new subscribers in the first quarter in more than a decade, as competition from newer rivals such as Disney+ grows.
Netflix expects to add only 2.5 million new subscribers globally in the first three months of the year, well down on the 4 million new sign-ups in the first quarter of 2021, and almost half the number expected by analysts.
The company has not reported such a low number of new subscribers in the first quarter since 2010, in the past seven years it has always managed to attract at least 4 million new signups, according to research firm Ampere Analysis.
Shares in the streaming company plunged by almost 20% on Friday, wiping almost $45bn (£33bn) from its value, as investors took fright at the unexpected slowdown in growth.
“While retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-Covid levels,” Netflix said, pointing to “Covid overhang and macroeconomic hardship” in parts of the world such as Latin America.
Netflix added 8.3 million new subscribers in the final quarter of last year, thanks to hits such as the Leonardo DiCaprio and Jennifer Lawrence film Don’t Look Up, and Squid Game, broadly in line with analyst expectations.
Overall, Netflix added 18.2 million new subscribers last year, half the number it gained in 2020 when the pandemic fuelled a streaming boom as the public sought to alleviate boredom during lockdowns.
Netflix admitted that the streaming wars against rivals such as Disney,
Apple, HBO Max, Peacock and Amazon, which on Wednesday announced details of its mega-budget Lord of The Rings TV adaptation, is intensifying but that it remains in growth in all territories.
“Consumers have always had many choices when it comes to their entertainment time – competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering,” the company said.
“While this added competition may be affecting our marginal growth, we continue to grow in every country and region in which these new streaming alternatives have launched.”
Last year, Netflix added the fewest number of UK subscribers since it launched in 2012.
Netflix’s disappointing results were accompanied by Peloton, the maker of exercise bikes and running machines which has been another pandemic winner, which suffered an almost 25% slump in its market value after a report that it has experienced a slump in demand.
The company’s chief executive, John Foley, told its 3,200 staff that it needs to “evaluate” the size of its workforce and indicated that production is to be scaled back.
“We feel good about right-sizing our production, and, as we evolve to more seasonal demand curves, we are resetting our production levels for sustainable growth,” he said.
Netflix and Peloton are among a number of companies that have thrived under lockdown conditions, but are now being dumped by investors as the stay-at-home boom fizzles out.
Zoom, the video-conferencing app that became indispensable during the pandemic, and Netflix’s rival Roku have both seen their market value fall by 60% over the past 12 months.Nevertheless, Netflix pointed to a number of big releases, including Ozark, Bridgerton and Stranger Things, later in the first quarter that it expects to drive a return to stronger growth.
“As an increasing number of subscription- and ad-based video services entered the fray, Netflix knew it would have to spend big on high-profile, original content to compete with not just legacy platforms but newer services, too,” said Ryan Cook, the UK managing director of the advertising technology company Criteo.
“While price increases across regions will offset this flood of content to some degree, Netflix may find itself looking over its shoulder at other advertising-funded video-ondemand services for inspiration. This could mean opening its platform up to ad-funded models for a reduced subscriber fee.”