- For the first time in over a decade, Netflix saw a net loss of customers.
- The streaming behemoth last disclosed subscriber losses in 2011.
- Password sharing and increasing streaming competition were significant obstacles for the corporation.
Netflix’s financial report revealed subscriber declines for the first time in over a decade.
The stock dropped 21% in after-hours trading after the earnings shortfall, as Wall Street reacted to Netflix losing 200,000 customers in the first quarter and projecting additional losses in the second.
The last time the streaming behemoth saw a drop in subscribers was in 2011.
Netflix predicted that it would lose two million customers next quarter in a letter to shareholders. The letter mentioned “revenue growth hurdles” such as “quite high home penetration” and increasing competition as “revenue growth headwinds.” In addition, the corporation has hiked its prices in the United States and Canada.
“Until recently, the massive COVID boost to streaming disguised the picture,” the letter stated.
When the pandemic initially hit, Netflix saw a surge in viewership, with docuseries like “Tiger King” capturing people’s attention cooped up at home. However, as the world reopens and competitors such as Disney+ and HBO Max compete for member dollars, Netflix is starting to rethink what might be limiting subscriber growth.
“COVID obscured the picture by significantly raising our growth in 2020, leading us to conclude that the COVID pull forward was responsible for most of our slowing growth in 2021,” the business wrote in the letter.
Netflix noted four major roadblocks: the influence of linked TVs and other technology on the expansion rate of its addressable market; widespread password sharing; greater competition from new streaming services; and macroeconomic reasons such as inflation and geopolitical instability, among others.
The drop in subscribers explains why Netflix experimented with measures to crack down on password sharing. In a shareholder letter, the business stated that its service is used by 100 million households worldwide, with 30 million in the United States and Canada.
“Sharing likely aided our development by increasing the number of people who use and enjoy Netflix,” the firm wrote. Netflix is currently testing new paid sharing services in Latin America and has stated that it would focus on monetizing freeloading households.
The ongoing Russia-Ukraine conflict also impacted Netflix’s business. According to the firm, a slowdown in its EMEA market coincided with Russia’s invasion of Ukraine. Its decision to cease operations in Russia resulted in a 700,000 paid net subscriber impact during the quarter.