Netflix loses a quarter of its value after reporting a shocking figure for the first quarter
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Netflix shares lost more than a quarter of their value this evening after the company released shocking news about the video streamer’s first-quarter earnings. For the first time in over a decade, the company reported a quarterly loss in the number of subscribers which totaled about 200,000 users. Netflix blamed the drop on password sharing, increased competition, inflation, and the Russian invasion of Ukraine.
The last time Netflix reported a decline in subscribers was in October 2011. And the bleeding is going to continue with the company forecasting a further decline of two million subscribers for the current quarter that wraps up at the end of June.
The report was released after regular trading hours on NASDAQ where Netflix shares had risen by $10.75 or 3.18% to close at $348.61 per share. But once investors saw the first quarter results and the forecast for the current quarter, they dumped the stock taking it down to $259 for a loss of $89.61 or 25.70% in after-hours trading. Netflix also took down the shares of fellow streamers like Roku, Disney, and Spotify, all of which declined thanks to Netflix. For example, Disney stock, which rose $4.40 during regular trading hours, gave it back and more when the report was released.
In a letter to shareholders, Netflix wrote, “Our revenue growth has slowed considerably. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds.”
Netflix pointed out that there is plenty of growth potential ahead as half of the world’s broadband users still do not have a Netflix account. As the company stated, “while hundreds of millions of homes pay for Netflix, well over half of the world’s broadband homes don’t yet, representing huge future growth potential.”
Looking to reduce the practice of password sharing which is eating into Netflix’s results, the streamer is looking to hike the subscription rate for plans that are shared between households. This could result in subscribers paying an extra $2.99 monthly to allow a family member who doesn’t live at the same address to share the account. Netflix Co-CEO Reed Hastings said that the company is considering offering lower-priced ad-supported tiers of service (similar to NBCUniversal’s Peacock).
During the first quarter of 2022, Netflix took in $7.87 billion, up 9.8% on an annual basis. Net income declined 5.9% from $1.7 billion to 1.6 billion during the first quarter. Diluted earnings per share slipped 5.8% to $3.53. For this quarter, Netflix sees earnings per share of $3.00.
The number of global streaming paid memberships declined from 221,840,000 to 221,640,000 from the 4th quarter of 2021 to the first quarter of 2022. Wall Street was expecting a 2.7 million increase in subscribers. The suspension of Netflix’s streaming service in Russia cost Netflix 700,000 subscribers. If not for that activity, Netflix would have reported an increase of 500,000 subscribers during the quarter.
Netflix announced today that over 100 million global households use a shared password and that a global crackdown on this practice is coming. 30 million Netflix users in the U.S. and Canada are believed to be sharing Netflix passwords while over 100 million additional households worldwide are sharing the same passwords. Netflix told shareholders on Tuesday that, “Account sharing as a percentage of our paying membership hasn’t changed much over the years, but…it’s harder to grow membership in many markets — an issue that was obscured by our COVID growth.”
Netflix said that originally it generously allowed users ti share passwords to help users get “hooked” to the service. But now, with the heavy competition that it faces from Disney+, Peacock, AppleTV+ and others, Netflix says that it is time for those getting the service for free to start paying for it.
Questions & Answers
Q.What factors did Netflix identify as contributing to its recent subscriber decline?
What factors did Netflix identify as contributing to its recent subscriber decline?
A.
Netflix attributed the drop to several factors including password sharing, increased competition from other streaming services, broader economic inflation, and the impact of the Russian invasion of Ukraine on its operations.
Q.How significant was the subscriber loss reported for the first quarter compared to expectations?
How significant was the subscriber loss reported for the first quarter compared to expectations?
A.
Netflix reported a loss of 200,000 subscribers, which was a significant shock. Wall Street analysts had been expecting a substantial increase of 2.7 million subscribers during the same period.
Q.What measures is Netflix considering to address the issue of password sharing?
What measures is Netflix considering to address the issue of password sharing?
A.
Netflix plans to reduce password sharing by potentially hiking subscription rates. This could involve subscribers paying an extra £2.99 monthly for family members outside their household to use the account.
Q.How did the suspension of service in Russia impact Netflix's subscriber numbers?
How did the suspension of service in Russia impact Netflix's subscriber numbers?
A.
The suspension of Netflix's streaming service in Russia directly resulted in a loss of 700,000 subscribers. Without this, Netflix would have reported an increase of 500,000 subscribers for the quarter.
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