Netflix claimed that inflation, the Ukraine conflict, and strong competition led to a loss of subscribers for the first time in more than a decade and that it expects even more losses in the future, signaling a dramatic turn in fortune for a streaming service that prospered during the epidemic.
According to the corporation, it lost 200,000 customers in the first quarter, falling well short of its target of 2.5 million new subscribers. After the invasion of Ukraine, the suspension of service in Russia had a toll, with 700,000 members losing their jobs.
After the bell on Tuesday, Wall Street pushed Netflix’s stock down 26%, wiping away almost $40 billion (about Rs. 3,05,320 crore) in market value. The business has lost almost half of its value after announcing dismal subscriber growth in January.
Netflix is considering launching a lower-cost version of the service with advertising due to slow subscriber growth, noting the success of comparable services from competitors HBO Max and Disney+.
Netflix CEO Reed Hastings said, “Those who have followed Netflix know that I’ve been against the complexity of advertising and a huge admirer of the simplicity of membership.” “However, as much as I support it, I am a larger supporter of consumer choice.”
Despite the return of such highly awaited programs as Stranger Things and Ozark, as well as the premiere of the film The Grey Man, starring Chris Evans and Ryan Gosling, Netflix forecasted a 2 million membership loss in the spring quarter. According to Refinitiv statistics, Wall Street expected 227 million in the second quarter.
Other video streaming-related companies were hit hard by the downturn, with Roku plunging nearly 6%, Walt Disney falling 5%, and Warner Bros Discovery losing 3.5 percent.
Hastings told investors that the epidemic had “generated a lot of noise,” making it harder to analyze the company’s subscription business’s ups and downs during the previous two years. It now seems that a mix of rivalry and the amount of users exchanging passwords is to blame, making it more difficult to expand.
In comments during Netflix’s investor video, Hastings stated of account-sharing, “It wasn’t a high priority to work on while we were expanding quickly.” “Right now, we’re putting in a lot of effort.”
EVENTS IN CONNECTION
Netflix’s first-quarter revenue increased 10% to $7.87 billion (approximately Rs. 60,080 crore), falling short of Wall Street expectations. It posted $3.53 (approximately Rs. 270) per share net profits, exceeding the Wall Street forecast of $2.89. (roughly Rs. 220).
While the firm is still optimistic about the future of streaming, it attributes its slowing growth to a variety of reasons, including the pace at which customers embrace on-demand services, a rising number of rivals, and a poor economy. Account-sharing is a long-standing practice, but Netflix is looking at methods to monetize the 100 million homes that utilize shared Netflix accounts, including 30 million in the United States and Canada.
As a consequence of this combination of events, Netflix reported losing subscribers for the first time since October 2011, surprising Wall Street.
“A combination of nearing saturation, inflation, increasing pricing, the situation in Ukraine, and competition” hurt them, according to Wedbush analyst Michael Pachter. “I don’t believe any of us anticipated it all happening at the same time.”
In the face of fierce competition from established competitors like Amazon.com, conventional media corporations like Walt Disney and the newly merged Warner Bros Discovery, and cash-flush newcomers like Apple, the world’s biggest streaming service was anticipated to post declining growth.
According to researcher Ampere Analysis, streaming services spent $50 billion (approximately Rs. 3,81,790 crore) on new content last year in an attempt to attract or keep members. That’s a 50 percent rise from 2019, when several of the newest streaming services debuted, indicating the “streaming wars” are quickly escalating.
Despite increased competition, Netflix’s proportion of TV watching in the United States has remained stable, according to Nielsen, a measure of customer satisfaction and retention.
Netflix is increasingly focusing on other regions of the globe and investing in local-language programming as growth in established countries such as the United States slows.
“While hundreds of millions of families pay for Netflix, well over half of the world’s internet homes do not,” the business said in a statement. “This represents significant future growth potential.”
The shaky global economy, according to Benchmark analyst Matthew Harrigan, “is expected to emerge as an albatross” for member growth and Netflix’s ability to keep boosting rates as competition heats up.
Streaming services aren’t the only kind of entertainment competing for the attention of customers. According to Deloitte’s newest Digital Media Trends report, Generation Z, or consumers aged 14 to 25, spend more time playing games at home than viewing movies or television programs, or even listening to music.
The majority of Gen Z and Millennial respondents claimed they spend more time viewing user-created videos on TikTok and YouTube than watching movies or episodes on a streaming service. Netflix’s stock, according to one market analyst, has profited from assumptions of everlasting growth.