The number of Netflix subscribers has fallen for the first time in more than a decade (10 years).
The streaming company lost about 200,000 members in the first three months of the year 2022, the company announced. The fall in numbers came after the firm raised prices in key markets including the US and UK, and also pulled out of Russia. But Netflix warned that more losses are coming, giving prior notice that it will start to crack down on account sharing as it pushes to sign up new members.
In a letter to shareholders, Netflix noted a surge in sign-ups that the firm experienced during the pandemic which “obscured the picture”. It warned investors it expected another two million subscribers to leave in the three months to July 2022.
“Our revenue growth has slowed considerably as our results and forecast below show,” the company noted, as it released its quarterly results. It also added that “Our relatively high household penetration, when including the large number of households sharing accounts, combined with competition, is creating revenue growth headwinds”.
The last time the company lost members in a quarter was October 2011. However, in the midst of all this, it can still boast of more than 220 million subscribers globally.
Russian hit
Pulling out of Russia, a step Netflix took following the country’s invasion on Ukraine, it disclosed that it cost the firm 700,000 subscribers. Another 600,000 people stopped its service in the US and Canada after a realization in price increment, Netflix disclosed. Netflix said that move is playing out “in line with expectations” and would yield more money for the firm, despite the cancellations.
The firm’s revenue in the first three months of the year (2022) was up by 9.8% compared with the same period last year (2021) to more than $7.8bn (£6bn). That marked a slowdown from earlier quarters, while profits fell more than 6% to roughly $1.6bn. Losses in the quarter were partially offset by new sign-ups elsewhere in Japan and India.
Projection into the Future
As it looks to grow, the firm pointed out that it is focused on international markets and finding ways to tap the 100 million people it has estimated to be sharing household accounts, including more than 30 million in the US and Canada. The company is looking to advertise and get revenue from customers who share accounts with family or friends.
According to the company’s Chief Executive, Reed Hastings, “Those who have followed Netflix know that I’ve been against the complexity of advertising, and a big fan of the simplicity of subscription. But, as much as I’m a fan of that, I’m a bigger fan of consumer choice.” Mr. Hastings added that “it’s pretty clear” ad-supported services are working for Disney and HBO.
Analyst Warnings
But analysts averred the rising costs are starting to wear on households. In the UK, households cancelled more than 1.5 million streaming subscriptions in the first three months of the year, with 38% saying they wanted to save money, the highest level ever, according to findings from market research firm, Kantar.
Netflix is also facing intense competition, as companies from Amazon and Apple to traditional media firms like Disney pour money into their online streaming services. Paolo Pescatore, who is an Analyst at PP Foresight, intimated that the subscriber loss was a “reality check” for the company, as it tries to balance retaining subscribers with raising its revenue.
“While Netflix and other services were key in lockdown, users are now thinking twice about their purchasing behaviour based upon changing habits. North America especially is now awash with too many services chasing too few dollars.”
Paolo Pescatore, Analyst at PP Foresight
Shares in the company plunged more than 20% in after-hours trading in New York following the news, wiping more than $30bn off the company’s market valuation. Investor concerns also hit shares in other entertainment firms, including Disney.
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