Netflix Actually Lost 200,000 Subscribers in Q1
Oh no: Netflix lost 200,000 global paid subscribers in the first quarter of 2022. Furthermore, the streaming king predicts a loss of 2 million more subs in the current second quarter, which runs from April to June. This moment marks the first time in 10 years that Netflix has lost subscribers.
Netflix ended Q1 with 221.64 million paid subs, a decline from the 221.84 million it had globally at the conclusion of last year. The company, led by co-CEOs Reed Hastings and Ted Sarandos, had previously predicted it would add 2.5 million subscribers in the January-March quarter.
As a result of the giant whiff, Netflix stock (NFLX) immediately sunk by more than 20 percent – or down about $75 – per share. Prior to the financial results becoming public, NFLX closed Tuesday under $350 per share, or about half the mighty heights it hit in the fall.
“Our revenue growth has slowed considerably as our results and forecast below show. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally,” the company’s Tuesday note to shareholders begins. “However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently.”
Netflix’s previous expectation was already pretty pessimistic in its own right when you consider the same quarter last year added 4 million global paid subs. Executives had explained away that self-downgrade by blaming “a more back-end weighted content slate” – namely “Bridgerton” Season 2 and Ryan Reynolds movie “The Adam Project” both launching in March.
Clearly, they underestimated the issues.
The Adam Project (L to R) Walker Scobell as Young Adam and Ryan Reynolds as Big Adam. Cr. Doane Gregory/Netflix © 2022
One of the main problems with the top SVOD (subscriber video on-demand) platform lies in its own success story. Netflix has essentially maxed out in the U.S. and Canada; anyone who lives here and wants Netflix already has it. While there are still opportunities to add valuable subscribers in certain European markets, much of what is left for Netflix comes from the likes of India and Africa – markets with lots of people but little disposable income. All Netflix can do there is ask for pennies on the dollar, unless it elects to monetize viewers through advertising. To this point, Netflix has avoided ads, but there are signs the company is softening their stance on commercials. That would have been blasphemous at the Los Gatos, California headquarters just a few years ago.
Another opportunity for Netflix to reevaluate its revenue streams and internal principals simultaneously is by cracking down on password sharing. The company is trying out exactly that in Latin America these days, and it sure sounds like that will expand rapidly and globally.
“There’s a broad range of engagement when it comes to sharing households from high to occasional viewing,” the Tuesday shareholder letter states. “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 reported Q1 net income of $1.597 billion – or diluted earnings per share (EPS) of $3.53 – on $7.868 billion in revenue. Within its year-end 2021 earnings, Netflix had forecast net income of $1.3 billion and diluted earnings per share of $2.86 on $7.9 billion. So at least the company’s profit outperformed.
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