Netflix published its results for the first quarter of 2022 last Tuesday, which reflected a noticeable loss of subscribers for the first time in its decade of history: 200,000, when according to The Guardian they expected to earn 2.5 million. But that was not the worst. The company It also expects to lose 2 million more users in the following quarter, that is, the one that has already started.
The news fell like a blow among its shareholders, who did not take long to apply a very harsh punishment to the company, which has led its shares, to date, to have lost more than 35% of their value: around 37% . No less than 50,000 million dollars of its total value have evaporated. And to this we must add the previous drop in its shares so far this year, a period in which they had already fallen by 40%. Therefore, the stage of exponential growth of the company’s shares is over, which not long ago provided notable profits to its shareholders, since from the end of 2019 to the end of 2021, Netflix shares rose no less than 86%.
Thus, from the $700 that each Netflix title was worth in November 2021, it has gone to $244, its value at the opening of today’s market. And big shareholders may be starting to jump ship, or at least thinking about it. One of them has already taken the step. Reuters notes that billionaire investor William Ackman sold all his Netflix titles yesterday Wednesday, losing more than $400 million from the price he paid for them when he bought them last January. He then paid $1.1 billion for the 31 million shares he has now divested.
From Netflix they point to various factors as the cause of the loss of subscribers to their service. One of them is the rethinking that consumers are doing of the streaming services to which they are subscribed, once the worst of the pandemic seems to have passed and we are returning to normality and activities outside the home.
Another is a higher level of competition in the streaming of movies and series, with the entry into the market of services such as Disney or Warner Bros Discovery, on many occasions with catalogs of notable importance. Also others that were already working, such as HBO or Amazon, are adding content and expanding markets. The company will also be affected by exiting the Russian market, which will cause them to lose about 700,000 subscribers, and their user data will undoubtedly also be affected by the increase in inflation in many markets.
The company, which not long ago raised the price of several of its streaming plans even though they were beginning to see signs that their user growth was slowing, has acknowledged that they have experienced “headwind on revenue growth“, as well as acknowledging that they are noticing higher levels of market penetration, but also fiercer competition.
Therefore, among other things, they need to create more original content, one of their main bets. But its fall on the stock market is not going to help precisely this. Despite being still very high, the value of the company, due to its fall in the stock market, is much lower, and its prospects make it difficult for the company to access financing to create new content.
But they are also going to take measures, although several of them are still unclear. What they are sure to do is end account sharing, since it is estimated that some 100,000 households access the contents of the platform with accounts that are not paying. They will thus end the permissiveness that they have shown up to now with these accounts. According to Reed Hastings, Founder and CEO of Netflix«when we were growing fast it was not a priority, but now we work hard on it«.
The company, in a letter to shareholders, has also assured that they will try to boost growth by improving the quality of their programming. In addition, they will assess the implementation of a subscription option with advertising, at a lower price than the current plans. Hastings has also recognized that he has always been «against the complexity of advertising» and has always been «follower of the simplicity of the subscription“, but acknowledges that “Although I like that, I like it better that consumers have the possibility of choosing«.
