From News Nation:
“Netflix shares drop 25% after
service loses 200K subscribers”
Netflix suffered its first
subscriber loss in more than a decade, causing its shares to plunge 25% in
extended trading amid concerns that the pioneering streaming service may have
already seen its best days. The company’s customer base fell by 200,000
subscribers during the January-March period, according to its quarterly
earnings report released Tuesday It’s the first time that Netflix’s subscribers
have fallen since the streaming service became available throughout most of the
world outside of China six years ago. The drop this year stemmed in part from
Netflix’s decision to withdraw from Russia to protest the war against Ukraine,
resulting in a loss of 700,00 subscribers. Netflix acknowledged its problems
are deep rooted by projecting a loss of another 2 million subscribers during
the April-June period. If the stock drop extends into Wednesday’s regular trading
session, Netflix shares will have lost more than half of their value so far
this year — wiping out about $150 billion in shareholder wealth in less than
four months. Netflix is hoping to reverse the tide by taking steps it has
previously resisted, including blocking the sharing of accounts and introducing
a lower-priced — and ad-supported — version of its service. Aptus Capital
Advisors analyst David Wagner said it’s now clear that Netflix is grappling
with an imposing challenge. “They are in no-(wo) man’s land,” Wagner wrote in a
research note Tuesday.
Netflix absorbed its biggest blow
since losing 800,000 subscribers in 2011 — the result of unveiled plans to
begin charging separately for its then-nascent streaming service, which had
been bundled for free with its traditional DVD-by-mail service. The customer
backlash to that move elicited an apology from Netflix CEO Reed Hastings for
botching the execution of the spin-off. The latest subscriber loss was far
worse than a forecast by Netflix management for a conservative gain of 2.5
million subscribers. The news deepens troubles that have been mounting for the
streaming since a surge of signups from a captive audience during the pandemic
began to slow. It marks the fourth time in the last five quarters that
Netflix’s subscriber growth has fallen below the gains of the previous year, a
malaise that has been magnified by stiffening competition from well-funded
rivals such as Apple and Walt Disney.
The setback follows the company’s
addition of 18.2 million subscribers in 2021, its weakest annual growth since
2016. That contrasted with an increase of 36 million subscribers during 2020
when people were corralled at home and starved for entertainment, which Netflix
was able to quickly and easily provide with its stockpile of original
programming. Netflix has previously predicted that it will regain its momentum,
but on Tuesday faced up to the issues bogging it down. “COVID created a lot of
noise on how to read the situation,” Hastings said in a video conference
reviewing the latest numbers. Among other things, Hastings confirmed Netflix
will start crack down on the sharing of subscriber passwords that has enabled
multiple households to access its service from a single account, with changes
likely to roll out during the next year or so.
The Los Gatos, California,
company estimated that about 100 million households worldwide are watching its
service for free by using the account of a friend or another family member,
including 30 million in the U.S. and Canada. “”Those are over 100 million
households already are choosing to view Netflix,” Hastings said. “They love the
service. We’ve just got to get paid at some degree for them.” To stop the
practice and prod more people to pay for their own accounts, Netflix indicated
it will expand a test introduced last month in Chile, Peru and Costa Rica that
allows subscribers to add up to two people living outside their households to
their accounts for an additional fee.
Netflix ended March with 221.6
million worldwide subscribers. The subscriber downturn clipped 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 climbed 10% from last year to
nearly $7.9 billion. With the pandemic easing, people have been finding other
things to do, and other video streaming services are working hard to lure new
viewers with their own award-winning programming. 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.
Escalating inflation over the
past year has also squeezed household budgets, leading more consumers to rein
in their spending on discretionary items. Despite that pressure, Netflix
recently raised its prices in the U.S., where it has its greatest household
penetration — and where it’s had the most trouble finding more subscribers. In
the most recent quarter, Netflix lost 640,000 subscribers in the U.S. and
Canada, prompting management to point out that most of its future growth will
come in international markets. Netflix also is trying to give people another
reason to subscribe by adding video games at no extra charge — a feature that
began to roll out last year.
^ Netflix needs to figure something
out to keep their costs low, get new customers and keep their current
customers. ^
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