Netflix Inc (NASDAQ: NFLX), the streaming giant, this week reported that the number of its subscribers has fallen for the first time in over a decade.
Having recently raised prices in important markets such as the US and the UK, the Nasdaq-listed company founded in 1997, reported a loss of 200,000 members in the first three months of the year. The decline brought Netflix’s paid global subscriber base to 221.6 million, down from 221.8 million in the prior quarter.
The California based streaming company saw its shares decline 20% on the news. This, after earlier this year, the company announced subscriber growth was slowing, which prompted an investor backlash that wiped nearly $45bn (£33bn) from the company’s value.
What Caused the Slowdown?
Like many online companies, Netflix enjoyed a bumper pandemic. Global lockdowns saw a surge in new subscribers. However, as the lockdown eased and the company raised its prices, it lost 600,000 subscribers in the US and Canada. The price increase came at a time when competition from rivals like Disney+ and Apple TV made the streaming market much more competitive.
The company also pointed out that pulling out of Russia cost them around 700,000 subscribers also.
Password sharing continues to be a problem for Netflix Inc. (NASDAQ: NFLX). An estimated 100,000,000 use Netflix’s streaming services on shared passwords. This includes an estimated 30 million in the US and Canada alone.
So, What’s Next for Nexflix Inc. NASDAQ: NFL?
It seems the second set of bad results has promoted a bit of a rethink at Netflix. The company made $1.6bn in profit over the quarter on $7.8m in sales. However, the slide in subscribers and change in spending habits post-pandemic are prompting change.
Already, a decline of up to 2 million subscribers is predicted for Q2. The executives at Netflix have openly stated that they are looking at an ad-based model similar to that of Disney. It would not be surprising if Netflix will add a cheaper, ad-supported subscription at some point this year.
Netflix will also make efforts to curb the password abuse and convert some of those 100 million non-paying subscribers into paying customers
Adam Seagrave, UK Sales Trader at Saxo Markets, said:
“Netflix shares fell over 20% in after hours trade following yesterday’s poor earnings report for Q1.
“With the company’s shares already down 49% since November, the company saw its first fall in subscribers in 10 years – losing 200,000 in the first three months of the year. This is expected to fall by two million in Q2 due to tighter purchasing power for consumers through increased inflation and a higher cost of living.
“The streaming giant plans to counter negative growth estimations in 2022 by introducing a lower price offering, which would include adverts for customers. Though a continued fall in revenue could see top grossing shows such as Bridgerton and The Crown affected as production budgets are squeezed.
“Plus, as many users try to cut costs by sharing passwords, there could be a crackdown on how and who account details are shared with in order for Netflix to maximise profits.”
The Outcome?
The Netflix model will change. It has to. As rising inflation starts hitting households and the competition from the likes of Disney, Amazon, Apple and Hulu increases, Netflix will have to make changes to stop the slide in fallen subscribers. Expect an ad-based service this year and a few other tweaks as Netflix wakes up to the 2022 wake-up call.
