Netflix on Tuesday reported a loss of 200,000 subscribers during the first quarter — its first decline in paid users in more than a decade — and warned of deepening trouble ahead.
The company’s shares cratered more than 25% in extended hours after the report on more than a full day’s worth of trading volume. Fellow streaming stocks Roku, Spotify and Disney also tumbled in the after-hours market after Netflix’s brutal update.
Netflix is forecasting a global paid subscriber loss of 2 million for the second quarter. The last time Netflix lost subscribers was October 2011.
“Our revenue growth has slowed considerably,” the company wrote in a letter to shareholders Tuesday. “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds.”
Netflix previously told shareholders it expected to add 2.5 million net subscribers during the first quarter. Analysts had predicted that number would be closer to 2.7 million. During the same period a year ago, Netflix added 3.98 million paid users.
Co-CEO Reed Hastings said the company is exploring lower-priced, ad-supported tiers in a bid to bring in new subscribers after years of resisting advertisements on the platform.
Here are the key numbers from the first-quarter report:
EPS: $3.53 vs, $2.89, according to a Refinitiv survey of analysts.
Revenue: $7.87 billion vs. $7.93 billion, according to a Refinitiv survey of analysts.
Global paid net subscriber additions: A loss of 200,000 compared with 2.73 million adds expected, according to StreetAccount estimates.
The company said that the suspension of its service in Russia and the winding-down of all Russian paid memberships resulted in a loss of 700,000 subscribers. Excluding that impact, the company said it would have seen 500,000 net additions during the most recent quarter.
Netflix also cited growing competition from recent streaming launches by traditional entertainment companies, as well as rampant password sharing for the recent stall in paid subscriptions.
The company estimates that in addition to its 222 million paying households, access is being shared with more than 100 million additional households through account sharing. It warned a global crackdown could be coming.
Netflix was an earlier winner when Covid lockdowns sent families inside and searching for entertainment. But the company now says pandemic-era gains “clouded the picture” for the company and that it’s seeing a downturn as people return to more normalized out-of-home activities.
In an effort to continue to gain share in the market, Netflix has increased its content spend, particularly on originals. To pay for it, it’s hiked prices of its service. The company said Tuesday those price changes are helping to bolster revenue, but were partially responsible for a loss of 600,000 subscribers in the U.S. and Canada during the most recent quarter.
While the company is exploring other options for growth, such as adding video games, analysts and investors are wondering what else Netflix can do to bolster profits.
The company’s revenue increased nearly 10% to $7.87 billion, but fell short of analysts’ expectations of $7.93 billion.
Net income during the quarter ended March 31 fell 6.4% to $1.6 billion, down from $1.7 billion the year prior. Excluding items, the company earned $3.53 per share, well above the $2.89 per share analysts had expected, according to a Refinitiv survey.
The company’s free cash flow amounted to $802 million during the quarter, up from $692 million a year earlier.
Meghan Markle and Prince Harry’s Netflix deal upset a large number of royal fans.
The duo’s contract, worth $100 million, has angered Netflix viewers so much that they have opted to cancel their subscription.
Responding to the announcement of the recently-inked deal, one user wrote, “May well cancel my subscription to Netflix ..”
Another one said, “Cancelled Netflix. Not paying one penny to them.”
A third fumed, “Not only will I not be interested in anything they have to say I will cancel my subscription!”
“Watch them on Netflix? I’d rather cancel my subscription,” lashed out another.
“If @netflix want to blow their money then that’s their choice. However we also have our choice of withdrawing our Netflix subscription.
“There are other mediums out there to switch to other than Netflix. Let’s cancel our subscription,” a sixth user blasted.
One more said, “Thank God I never subscribed to NETFLIX ~ means I don’t have to cancel my subscription in view of this so called mega deal with ‘woke’ & irritating Just Harry & MeAgain.”
Meanwhile, Buckingham Palace insiders also reacted to the news recently, rather saltily, saying that the deal will be ‘scrutinised’ by the royal household.
“Harry and Meghan did leave as working members of the family with everyone’s best wishes and it is sincerely hoped they find the happiness that appeared to be lacking in their lives.”
“However, it goes without saying any deals they are making will be scrutinized by the royal household,” the source added.
They further mentioned, “Under the terms of their deal to forgo their royal duties, they agreed any commercial deals would be subject to discussion. This deal with Netflix, any speaking engagements or other corporate work are examples.”