Today’s Netflix news is concerning. The streaming service reported losing 200,000 customers in the first quarter of 2022, its first drop in almost a decade. And the company’s losses are expected to continue, with Netflix forecasting a 2 million global paid subscriber loss in the second quarter.
This loss is higher than the company’s previous forecasts. The business told shareholders that it anticipated to attract 2.5 million net subscribers in the first quarter, down from 4 million the year before. Analysts had predicted that 2.7 million people would sign up.
Netflix’s member base has dropped to 221.6 million, down from 221.8 million in the previous quarter. According to the corporation, its service is used by over 100 million more households, with over 30 million of them based in the United States and Canada.
The company attributed the drop in subscribers to a number of causes. The suspension of its operation in Russia, for example, resulted in the loss of 700,000 subscribers. Netflix claims that if it hadn’t been for it, it would have added 500,000 net subscribers in the quarter. The invasion of Ukraine by Russia may have had a wider impact, since Netflix reported a slowdown in its operations in Central and Eastern Europe in March, which corresponded with the start of the invasion.
Netflix listed a variety of other issues in its shareholder letter as contributing to the loss. To explain why it was doing so poorly with new user acquisition, the streamer cited everything from password sharing to the competitive landscape to Covid and even inflation. Netflix recently began testing a feature that would require members to pay an additional fee if they shared their account with others outside their household, in order to address the password sharing issues.
While the firm is now testing this new function in Costa Rica, Peru, and Chile, it is expected to spread in the future. In a letter to shareholders, Netflix stated:
“There’s a broad range of engagement when it comes to sharing households from high to occasional viewing. So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”
Netflix announced in January that it planned to gain fewer customers in the first quarter than in past years since most of its high-profile content, including as the second season of “Bridgerton” and “The Adam Project,” will be published near the end of the quarter. However, this doesn’t fully explain the impact because, in addition to these high-profile efforts, Netflix aired a number of other popular shows during the quarter.
Netflix has always fought with linear TV, Amazon, YouTube, and Hulu in terms of the competitive landscape, but claims things have changed in the last three years as new entrants have entered the market. This is having an especially negative impact on growth in the United States, according to the company’s shareholder letter:
“…Traditional entertainment companies realized streaming is the future, many new streaming services have also launched. While our U.S. television viewing share, for example, has been steady to up according to Nielsen, we want to grow that share faster.”
The company also indicated that retention was somewhat lower than expected, but that it was still strong and better than its competitors.
The company’s revenue for the quarter was $7.78 billion, which fell short of analysts’ expectations of $7.93 billion. However, EPS came in at $3.53, compared to $2.89 projected.
On the announcement of the subscriber declines, the company’s stock is plummeting in after-hours trade. In after-market trade, shares fell by 23%, wiping off $30 billion in market value.
In the last two years, Netflix’s market share has greatly declined. According to Parrot Analytics, it fell from 55.7 percent to 45.2 percent globally and from 52.4 percent to 42.4 percent in the United States between Q1 2020 and Q1 2022.