Investors, analysts and Hollywood executives had been bracing for the company to report a sluggish start to the year, but Wall Street still expected Netflix to add 2. 5 million customers. The shares, already down more than 40% this year, tumbled over 35% in early trade on Wednesday. Netflix management pointed to four causes, including the prevalence of password sharing and growing competition. The company said there are 100 million households that use its service and don’t pay for it, on top of its 221. 6 million subscribers. The company is experimenting with ways to sign up those viewers. “Our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds,” the management wrote in a letter to shareholders.
The results will have ramifications for all of the big entertainment companies. After watching millions of customers abandon pay TV for streaming, US entertainment giants have merged and restructured to compete with Netflix in streaming. Investors encouraged this strategic shift, buying shares in companies like Walt Disney that demonstrated a commitment to streaming.
Netflix’s troubles will cause investors to question whether the later-arriving media companies will sign up eno- ugh customers to justify all the money they are spending on fresh programming.
Co-chief executive officers Reed Hastings and Ted Sarandos had dismissed the company’s recent slowdown in growth as a speed bump related to the pandemic, which accelerated its growth in 2020. But its subscriber acquisition has slowed for a year and a half, and the company hasn’t reverted to pre-pandemic levels. “The big Covid boost to streaming obscured the picture until recently,” the company said.
Netflix lost customers in three of its four regions, including more than 600,000 in the US and Canada. It blamed most of that attrition on a price increase, and said the decline was expected. Russia’s invasion of Ukraine cost the company another 700,000 customers when it had to pull its service in Russia, resulting in a loss of 300,000 customers in the Europe, Middle East and Africa. Asia was the lone bright spot. Netflix added more than 1 million customers in the region.