March 10, 2022
After appreciating significant strides in the days of stay-at-home orders and pandemic boredom, Netflix is feeling the weight of nervous shareholders – who are understandably skeptical if the company has anything left in the tank.
The streaming giant added more than 18.2 million subscribers in 2021 and an astonishing 37 million subscribers in 2020. However, the streaming giant could have had a stronger start to 2022. The streaming service lost 200,000 subscribers in the first quarter, according to its shareholder letter released on Apr. 19. It’s the first contraction in subscribers in over a decade.
The loss was shocking because Netflix projected a net increase in subscribers for Q1 2022. In its last quarter projection, where it laid out its expectations for yesterday’s report, the company indicated that it was looking for close to 2.5 million net new subscribers in the quarter.
What’s shocking isn’t necessarily the slowdown in its subscriber count (that was expected), but the fact that they experienced high churn and little new signup interest.
Some of that high churn can be attributed to the company’s recent price hike, which was announced in late January. The hike went into effect on Mar. 30. The price of Netflix’s standard plan rose from $13.99 to $15.49, a 10.7% increase – call that an inflation adjustment.
However, what really sank Netflix’s battleship wasn’t the bungled subscriber estimate alone – instead, it came in tandem with more pain. The streaming service now expects to report a loss of 2 million subscribers in the current quarter (Q2 2022). They cited inflation, password sharing, and other industry headwinds as the reason for the subscriber reversal.
Another huge reason behind cancellations? The psychological conclusion to the pandemic. COVID-19 is by no means over, but it is in the minds of millions of people who are exhausted with masking up and staying home. During the COVID-19 pandemic, Netflix added more than 55 million subscribers. It’s just a reality that some of them are ready to displace their regular Netflix sync with gym memberships or IRL social events.
The market reacted pretty aggressively to this news – Netflix dropped over 26% after the report, and it might have even lost its position as a member of the famous “FAANG Club” (perhaps it will be replaced by Microsoft and they’ll call it FAAMG?)
At face, this dramatic drop can be understood – but the contraction in subscribers actually had little impact on the company’s top line (revenue). The company posted a modest increase in revenue: it rose 2% quarter-over-quarter (QoQ) to $7.87 billion. And for next quarter, once the price increases finally kick in, Netflix is expecting another 2% QoQ rise. They plan to eclipse a milestone $8 billion worth of revenue in the current period.
Netflix’s bad numbers led other streaming names lower, including Disney (which owns Disney+ and Hulu), Roku, and Warner Bros. Discovery (who owns HBO Max and Discovery+). We’ll have to see if they perk up after their respective earnings reports, or if they will also take a punch in the face from the conclusion of pandemic-era “business as usual.”