Netflix Shares Tank After Company Reports Losing Subscribers for the First Time in a Decade

Netflix shares plunged 25% following a Q1 2022 earnings report today that revealed the company lost subscribers for the first time in more than a decade.

Paid net additions were down 200,000 in Q1, compared to a forecasted gain of 2.5 million. Although the Q1 loss can be blamed on the suspension of service in Russia (-700,000 subscribers), the company is forecasting a loss of 2 million subscribers next quarter.

In its letter to shareholders, Netflix says its growth is being affected by four factors: penetration into broadband homes, password sharing, competition from new streaming companies, and macro factors like the economy.




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COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward. Now, we believe there are four main inter-related factors at work.

First, it’s increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don’t directly control, like the uptake of connected TVs (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs. We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers.

Second, in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets - an issue that was obscured by our COVID growth.


Third, competition for viewing with linear TV as well as YouTube, Amazon, and Hulu has been robust for the last 15 years. However, over the last three years, as traditional entertainment companies realized streaming is the future, many new streaming services have also launched. While our US television viewing share, for example, has been steady to up according to Nielsen, we want to grow that share faster. Higher view share is an indicator of higher satisfaction, which supports higher retention and revenue.

Fourth, macro factors, including sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID are likely having an impact as well.
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Netflix says it will focus on improving quality of programming and recommendations, work to monetize password sharing, and continue international expansion.

More details in the full report linked below...

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