Netflix stock plunged 35% after losing paying subscribers for the first time in 10 years

One of the leading video streaming platforms, Netflix stock fell 35% postmarket after the video streaming giant reported a loss of 200,000 paid subscribers in the first quarter of 2022 and the risk of losing another 2 million subscribers. Netflix, which now has over 220 million subscribers, last reported losing customers in October 2011.

Streaming video giant Netflix reported the loss of 200,000 subscribers for the first time in more than a decade and predicted a further decline in the second quarter. Shares of the company fell more than 35% in after-hours trading to $257.28 a share by 12:25 am Moscow time, according to Yahoo Finance. The closing price was $348.61 per share. 

Netflix now has 226.1 million subscribers. The last time the company reported losing customers was in 2011. The company said in a letter to shareholders on the results of the first quarter that it had not reached its target of 2.5 million new paid video service subscribers.

The company noted that the decision to suspend operations in Russia, made in early March, deprived the streaming service of 700,000 users. In the first quarter, Netflix added 1.1 million users in the Asia-Pacific geographic segment, but lost them in Europe, the Middle East, Africa and Latin America. The company warned about the risks of losing 2 million subscribers in the second quarter.

Wall Street’s consensus forecast, according to Refinitiv, cited by Reuters, was 227 million subscribers for the spring quarter. Netflix’s first-quarter revenue rose 10% to $7.87 billion, slightly below Wall Street’s forecast of $7.93 billion. The company posted net distributed earnings per share of $3.53, ahead of Wall Street consensus. at $2.89.

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The company attributed the difficulty in signing up new customers to the fact that interest in video streaming, fueled by the COVID-19 pandemic, obscured the real picture: “A large number of households using accounts, combined with competition, create barriers to income growth.” The number of shared accounts has become a big problem for the video service – in addition to paying customers, Netflix has about 100 million households that it says share accounts. Of these, 30 million are in the US and Canada. 

Netflix noted that the service’s share of U.S. TV viewing has remained stable, according to Nielsen, indicating subscriber satisfaction. The video streaming service is competing with Amazon, Walt Disney, the newly formed Warner Bros Discovery and Apple. In 2021, streaming services spent $50 billion on new content to attract or retain subscribers, according to research firm Ampere Analysis. This is 50% more than in 2019 when new streaming services were launched.

Netflix has been able to increase subscription prices in the US, UK and Ireland to fund content production and growth in other parts of the world such as Asia, Wedbush analyst Michael Pachter said. However, subscription prices in emerging markets are lower. Benchmark analyst Matthew Harrigan warned that uncertainty in the global economy could undermine subscriber growth and Netflix’s ability to continue to raise prices as competition intensifies.

The fall in Netflix stock price after the publication of data for the first quarter also affected shares of similar companies – Roku fell by more than 6%, Walt Disney – by 3%, and Warner Bros Discovery – by 2%, reports Reuters. Netflix stock itself are down 42% for 2022 (to close Tuesday) compared to the S&P 500’s fall of about 6% over the same period.