Netflix shares drop 26 per cent after it loses 200K subscribers

SAN FRANCISCO –

Netflix’s first subscriber loss in over a decade caused its shares plunge 25% in extended trading amid worries that the pioneering streaming service might have reached its peak.

According to Tuesday’s quarterly earnings report, the company saw a drop in customer base of 200,000 during January-March. It is the first time that Netflix subscribers have declined since it was made available worldwide six years ago. This year’s drop was due in part to Netflix’s decision not to withdraw from Russia in protest of the war in Ukraine. It also saw a decrease in 700,00 subscribers.

Netflix still acknowledged that it has problems and projected another 2,000,000 subscribers loss during the April-June period.

Netflix shares could lose more than half their value if the stock market plunge continues into Wednesday’s regular trading sessions. This would wipe out $150 billion of shareholder wealth in less that four months.

After it revealed plans to charge separately for its then-nascent streaming services, the company also lost 800,000. subscribers in 2011. Netflix CEO Reed Hastings was forced to apologize for the botched execution of the spinoff due to customer backlash.

In 2019, there was also a drop in U.S. subscriber numbers.

Netflix management had predicted a gain of 2.5 million subscribers, but the subscriber losses were much more severe than they actually realized. The news worsens the difficulties that have been building for streaming ever since a sudden surge in signups during the pandemic.

This is the fourth consecutive quarter in which Netflix’s subscriber growth has been below its gains from the previous year. Now, investors are concerned that Netflix’s streaming services may be suffering from a slump that has been made worse by stiffening competition coming from well-funded competitors like Apple and Walt Disney.

This setback comes after the company added 18.2 million subscribers to 2021, which was its lowest annual growth rate since 2016. The contrast is with the increase of 36million subscribers in 2020, when Netflix was able provide entertainment for people who were trapped at home.

Netflix had previously said it would regain its momentum but now it is acknowledging that it is in serious trouble and needs to take action. Netflix also indicated it will likely crackdown on sharing subscriber passwords which have allowed multiple households access to its service from one account.

According to the Los Gatos company, around 100 million households are using the same account worldwide, with 30 million of them in the U.S. and Canada. Netflix may increase a test it introduced in Chile, Peru, and Costa Rica last month that allows subscribers to add two additional people to their accounts. This is to stop this practice and encourage more people to purchase their own accounts.

“Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets – an issue that was obscured by our COVID growth,” Netflix saidTuesday, in a letter addressed to shareholders

Netflix had 221.6 million subscribers worldwide at the end of March.

People have found other activities as the pandemic has subsided. Video streaming services like Netflix and Amazon are also working hard to draw new viewers to their award-winning content. Apple, for instance, held the exclusive streaming rights to “CODA,” which eclipsed Netflix’s “Power of The Dog,” among other movies, to win Best Picture at last month’s Academy Awards.

The increase in inflation over the last year has also strained household budgets, forcing more consumers to reduce their discretionary spending. Netflix recently increased its prices in the U.S. where it has the greatest household penetration, and where it is having the most difficulty finding more subscribers. Netflix lost 640,000 subscribers to the U.S. and Canada during the quarter. Management was quick to remind that its future growth will be in international markets.

Netflix is offering video games free of charge to subscribers, which was a feature that started to be available last year.