Netflix sheds subscribers for the first time in a decade

Netflix mentioned its decade-long run of subscriber progress ended within the first quarter and admitted it was changing into “harder to grow membership” in lots of markets, sending its shares tumbling 27 per cent in pre-market buying and selling on Wednesday.

The video streaming pioneer shocked traders by forecasting that its variety of subscribers would fall by one other 2mn within the present quarter, to about 219.6mn, after declining about 200,000 within the first quarter. Investors had anticipated a rise of two.6mn subscribers.

Netflix blamed the dramatic slowdown partly on saturation in its greatest markets. But it additionally acknowledged the impression of rising competitors from streaming companies launched by conventional media teams similar to Disney, Warner Bros Discovery and Paramount. Together, these elements had created “revenue growth headwinds”, the corporate mentioned.

“We’re definitely feeling higher levels of [market] penetration . . . and heightened competition,” mentioned Ted Sarandos, co-chief govt.

The report from Netflix, after market shut on Tuesday, marked a reversal in fortune for a corporation that has proven blistering progress over the previous 10 years, and which boomed in the course of the depths of the coronavirus pandemic. As it confirmed indicators of slowing late final yr, firm officers blamed “noise” from the lingering results of the Covid disaster.

“This was a change in tone”, mentioned Jefferies analyst Andrew Uerkwitz, who famous Netflix not often even acknowledged that it confronted competitors prior to now. “It sounds like they’re in rebuilding mode.”

Netflix mentioned it might attempt to jump-start progress by enhancing the “quality of our programming” and by in search of to cost among the 100mn households that share different customers’ accounts.

Reed Hastings, co-chief govt, mentioned account sharing, which has all the time been an issue at Netflix, is coming into focus. “When we were growing fast it was not a high priority, but now we’re working super hard on it,” Hastings mentioned. The firm is testing the best way to cost for shared accounts in markets similar to Chile and Peru.

Hastings additionally mentioned Netflix deliberate to launch an ad-supported streaming service — an concept that he had lengthy resisted. “It’s something we’re looking at now and will roll out over next year or two,” he mentioned. “It’s working for Hulu, and Disney is doing it. Those companies have figured it out.”

The report will in all probability intensify investor issues about the price of the streaming wars, and the potential measurement of the earnings at stake. Netflix will spend $19.2bn on content material this yr, Uerkwitz estimated, because it competes with Amazon, Apple, Disney and others which might be investing closely in streaming.

Spencer Neumann, Netflix chief monetary officer, mentioned the corporate will probably be “pulling back on some of our spending growth across both content and non-content” over the subsequent 18 to 24 months due to slower income progress. “But we will still be investing aggressively into that long-term opportunity.”

Netflix raised costs within the US and Canada, which value it about 600,000 subscribers however was however “significantly revenue positive”, the corporate mentioned. It additionally give up streaming in Russia after the invasion of Ukraine, costing it about 700,000 subscribers.

This is the second time Netflix has shocked traders this yr, after jolting the markets in January with its forecast that subscriber progress would gradual considerably in 2022. Its shares are down about 40 per cent this yr.

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