As the pandemic has ebbed away, many products and services which had benefited from people remaining confined indoors seem to be feeling the heat.
Netflix’s shares have dropped a stunning 35% on the stock markets after it reported that it had lost 2 lakh subscribers globally. This was the first time that Netflix’s subscriber count had fallen in over a decade. Netflix’s stock was pummeled when stock markets opened in the US, and has fallen 35% since its numbers were revealed. The fall represents a wiping away of $50 billion of shareholder wealth overnight.
And the fall in subscribers didn’t seem to be a one-off — Netflix estimated that it could lose 2 million subscribers in the coming quarter. “Our revenue growth has slowed considerably,” Netflix 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.” This seemed to have spooked investors further, and sparked off the selloff in Netflix’s stock. Netflix’s stock has now lost 68% of its value over the last six months.
Netflix, for its part, says that a variety of factors contributed to the loss in its subscribers. The company had exited the Russian market after the country had invaded Ukraine, and that led to a loss of 700,000 of its Russian users. Netflix also said that its subscriber growth had slowed down because too many people were sharing its passwords. Netflix even blamed rising inflation for slowing user growth.
While Neflix’s struggles seem to be global, the company has been faring particularly poorly in India. “The thing that frustrates us is why haven’t we been as successful in India,” Netflix CEO Reed Hastings had said last year. Netflix has largely failed to make inroads in India, which is attributed to intense competition from other players, and its relatively expensive plans. Critics have also said that its original programming is too ‘woke’, which has put off a majority of Indians from its services.
Netflix, though, seems to taking steps to stem its subscriber losses. The company says it will crack down on password sharing, and introduce differently-priced plans for users who plan to share their passwords. In a major departure from what seemed to be one of its core principles, Netflix says it’s also considering introducing cheaper plans with advertising options. And it’s just as well — stock markets don’t take kindly to declines in user numbers in high growth companies. Facebook’s stock had crashed 20% earlier after the company had reported lowered user numbers for the first time in 18 years. Netflix still has 221.6 million paying users, but a 200,000 fall in their numbers has caused the company to lose more than a third of its value overnight.
The streamer pointed to everything from password sharing to the competitive landscape to Covid and even to inflation to explain why it was doing so poorly with new user acquisition.
The company explained the subscriber loss as being related to a number of factors. Notably, the suspension of its service in Russia led to a loss of 700,000 subscribers. Excluding that, Netflix says it would have instead seen 500,000 net subscriber additions in the quarter. Russia’s invasion of Ukraine may have had a further impact on other regions, as Netflix said it saw a slowdown in its business in Central and Eastern Europe in March, which coincided with the invasion’s start.
Netflix on Tuesday reported the biggest loss of subscribers for the first time in over 10 years. The streaming giant lost 200,000 subscribers globally in the first quarter, and it forecasted even bigger trouble ahead. According to Netflix’s estimates, it could lose up to 2 million subscribers in the upcoming second quarter — owing to the increase in subscription tariff and the fact that Netflix is working on a feature to curb password sharing.
“Our revenue growth has slowed considerably,” Netflix 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.”
In January, Netflix reported its first monthly subscription increase in two years, but the latest earnings reports show the company is facing challenges in retaining existing customers as well as attracting new ones, even though it is still the largest streamer in the world with around 222 million subscribers. Netflix said it lost 600,000 customers in the US and Canada this quarter. The data for Indian customers as well as those elsewhere, however, is not revealed in the report.
But the company highlighted that the subscribers discontinued their subscription because of the price change, but the slowdown in the company’s growth could be because of account sharing.
However, the price increase may not just be the only problem for Netflix. In March, Netflix introduced two new paid sharing features in at least three markets as a part of its efforts to stop password sharing between different households. Netflix estimates that there are over 100 million households using another household’s account — something Netflix sees as a roadblock to its growth after so many years.
“Sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households,” the streaming giant said.
Netflix CEO Reed Hastings, however, believes that monetise account sharing will spur growth in ARM and revenue. “…revenue and viewing will become more important indicators of our success than membership growth.”
The loss of subscribers can also be attributed to the suspension in Russia over the ongoing Ukraine crisis, which, according to the company, was responsible for the loss of 700,000 subscribers.