Netflix shares plummet as the service loses 200,000 subscribers

SAN FRANCISCO (AP) – Netflix suffered its first subscriber loss in more than a decade, plunging its shares 25% in extended trading amid concerns that the pioneering streaming service may have already seen its best days.

The company’s customer base declined by 200,000 subscribers during the January-March period, according to its quarterly earnings report released Tuesday. It’s the first time Netflix subscribers have declined since the streaming service became available in most parts of the world outside of China six years ago. This year’s decline stemmed in part from Netflix’s decision to withdraw from Russia to protest the war against Ukraine, resulting in the loss of 700,000 subscribers.

Netflix acknowledged that its problems are deeply ingrained by predicting a loss of another 2 million subscribers during the April-June period.

If the decline in shares extends into Wednesday’s regular trading session, Netflix shares will have lost more than half of their value so far this year, wiping out an estimated $ 150 billion in shareholder wealth in less than four months.

Netflix hopes to reverse the trend by taking steps it has resisted previously, including blocking account sharing and introducing a low-priced, ad-supported version of its service.

Aptus Capital Advisors analyst David Wagner said it is now clear that Netflix is ​​grappling with a massive challenge. “I’m in no man’s land,” Wagner wrote in a research note Tuesday.

Netflix took the biggest blow since losing 800,000 subscribers in 2011, the result of unveiled plans to start paying separately for its then fledgling streaming service, which was bundled free with its traditional DVD service for mail. The customer’s backlash to that move prompted an apology from Netflix CEO Reed Hastings for failing to execute the spin-off.

The latest subscriber loss was far worse than Netflix management anticipated for a conservative gain of 2.5 million subscribers. The news exacerbates the problems that have been growing for streaming since a wave of registrations from captive audiences during the pandemic began to slow.

It marks the fourth time in the past five quarters that Netflix’s subscriber growth has fallen below the previous year’s earnings, a malaise that has been amplified by fierce competition from well-funded rivals like Apple and Walt Disney.

The setback follows the company’s addition of 18.2 million subscribers in 2021, the weakest annual growth since 2016. This is in contrast to an increase of 36 million subscribers in 2020, when people were locked up at home and hungry for entertainment, which Netflix was able to quickly and easily get to supply with its original programming stash.

Netflix previously predicted it will pick up its momentum, but on Tuesday it addressed issues that were blocking it. “COVID has created a lot of noise about how to read the situation,” Hastings said in a video conference reviewing the latest issues.

Among other things, Hastings confirmed that Netflix will begin cracking down on sharing subscriber passwords which has allowed multiple families to access its service from a single account, with changes likely to be introduced over the next year.

The Los Gatos, California-based company estimates that approximately 100 million households worldwide are watching its service for free using the account of a friend or other family member, including 30 million in the United States and Canada. “More than 100 million households are already choosing to view Netflix,” said Hastings. “Love the service. We just have to get paid to some extent for them. “

To stop the practice and get more people to pay for their accounts, Netflix has indicated it will expand a test introduced last month in Chile, Peru and Costa Rica which allows subscribers to add up to two people living outside their family to their accounts for an additional fee.

Netflix ended March with 221.6 million subscribers worldwide. The decline in subscribers cut Netflix’s finances in the first quarter, when the company’s profit fell 6% from last year to $ 1.6 billion, or $ 3.53 per share. Revenue increased 10% from last year to nearly $ 7.9 billion.

As the pandemic eased, people have found other things to do, and other video streaming services are working hard to attract new viewers with their award-winning programming. Apple, for example, held the exclusive streaming rights to “CODA,” which eclipsed Netflix’s “Power of The Dog,” among other films, winning Best Picture at last month’s Academy Awards.

Rising inflation over the past year has also squeezed household balance sheets, leading more consumers to curb spending on consumer discretionary. Despite this pressure, Netflix recently raised its prices in the United States, where it has its greatest penetration into households and where it has had the greatest difficulty finding more subscribers. In the most recent quarter, Netflix lost 640,000 subscribers in the US and Canada, prompting management to point out that most of its future growth will come in international markets.

Netflix is ​​also trying to give people another reason to subscribe by adding video games at no extra cost – a feature which started rolling out last year.