Netflix loses 200,000 subscribers in Q1 and predicts loss of another 2M in Q2

Netflix lost 200,000 subscribers in the first quarter and is looking to lose another 2 million in the current second quarter, the streamer said in its Q1 2022 earnings report on Tuesday.

In January, Netflix reported that it had 221.84 million subscribers as of the end of 2021. the total number of subscribers fell to 221.64 million.

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This is the first time Netflix has lost subscribers in a quarter in 10 years. Netflix said that without taking into account losses in Russia, where the streamer shut down services due to countries invading Ukraine, it would have added 500,000 subscribers in the first quarter.

The streaming service had previously forecast 2.5 million paying new subscribers in the first quarter, while Wall Street analysts had expected Netflix to add 2.8 million new subscribers worldwide in the first quarter, up from 3.98 million a year earlier, according to FactSet. . So expectations that it would perform worse compared to previous quarters were taken for granted – the fact that it actually lost the subwoofers is pretty shocking. Netflix cites both increased competition and password sharing, which the streamer wants to monetize, as reasons for the loss of subscribers.

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Shares of Netflix closed Tuesday at $348.42 a share. After hours, shares fell more than 25% after reporting a loss of Netflix subscribers in the first quarter and forecasts of deeper losses in the second quarter.

“We have to compete, and we have to keep improving the core service that is making TV series and movies and now games that people really enjoy,” said co-CEO and chief content officer Ted Sarandos during the company launch. a pre-recorded earnings presentation that was released following the release of financial data on Tuesday. “That’s what we’re really focused on and that’s where we can continue to grow the business. Now we’ve been talking about high user penetration in some of these major markets, which means it’s harder to get them to join Netflix. if they are already using Netflix. So we need to figure out these different models that we’re doing now to monetize that viewing more effectively.”

Co-CEO Reed Hastings said Netflix is ​​now exploring launching cheaper, ad-supported streaming options, something the streaming mogul has long opposed. Hastings also pointed out how limiting password sharing would help Netflix attract the subscribers it technically already has as users: “They love the service, we just have to pay.”

Netflix executives have previously said the streamer intends to spend about $18 billion on content this year, and Sarandos backed that figure on Tuesday, although CFO Spencer Neumann warned Netflix would be “smart and prudent in terms of cutting some of that spending growth.” to reflect the realities of business revenue growth.”

“We will continue to increase our content spending over previous years,” Sarandos said. “Most important, however, is the impact of shale. And we’re really focused on making the impact of the tablet continue to grow. In 10 years, we should get more bang for our buck than we did ourselves and the market.”

In terms of first-quarter financial results, Netflix beat Wall Street’s expectations on earnings but lost on revenue. Analysts are forecasting earnings per share (EPS) of $2.89 on revenue of $7.93 billion, according to analyst consensus data provided by Refinitiv. On Tuesday, Netflix reported diluted earnings per share of $3.53 on revenue of $7.868 billion. Revenue grew by 9.8% compared to the first quarter of 2021.

Operating income was $1.97 billion with an operating margin of 25.1%. Netflix’s net income for the quarter was $1.6 billion.

The company said net cash used in operations was $923 million and free cash flow was $802 million.

“Our revenue growth has slowed significantly, as shown by our results and the forecast below,” Netflix said in a letter to shareholders that accompanied its first-quarter earnings report. “Streaming is beating linear as we predicted, and Netflix games are very popular all over the world. However, our relatively high household penetration – given the large number of households sharing accounts – coupled with competition poses a barrier to income growth. The large streaming momentum due to COVID has clouded the picture until recently. As we work to accelerate our revenue growth—by improving our services and monetizing multi-household sharing more effectively—we will maintain our operating margin at around 20%. The key to our success has been our ability to create amazing entertainment from around the world, present it in a very personalized way and get more views than our competitors. These are the main strengths and competitive advantages of Netflix. Together with our high profitability, we believe we have a foundation on which we can significantly improve and better monetize our services in the long term.”

Netflix named four reasons for the loss of subscribers:

“First, it is becoming increasingly clear that the growth rate of our core addressable market (broadband homes) depends in part on factors we do not directly control, such as the use of connected TVs (since most of our viewing is on TVs), implementation of on-demand entertainment and data costs”.

“Second, in addition to our 222 million paying households, we estimate that there are over 100 million households using Netflix, including over 30 million in the UCAN region.”

“Third, competition for viewing on linear TV as well as YouTube, Amazon and Hulu has been strong for the past 15 years. However, over the past three years, as traditional entertainment companies have realized that streaming is the future, many new streaming services have also been launched.”

“Fourthly, macroeconomic factors, including sluggish economic growth, rising inflation, geopolitical events such as Russia’s invasion of Ukraine, and some ongoing disruptions due to COVID, are also likely to have an impact.”

According to Netflix, “Our plan is to once again accelerate viewing and revenue growth by continuing to improve every aspect of Netflix, in particular the quality of our programs and recommendations, which our subscribers value most. In terms of content, we will redouble our efforts in story development and creative excellence, which we see reflected in the major TV hits of the first quarter of 2022, such as Bridgerton (627 million hours watched for season 2, our largest English-language series in our stories). and “Inventing Anna” (512M Hours Viewed) – both from our hugely successful partnership with Shonda Rhimes – and films like “Tinder Swindler” (166M Hours Viewed, our biggest documentary ever released) and ” Project Adam” (233 million hours viewed). ) that accompany our hits “Red Notice” and “Don’t Look Up”. On the product side, we recently launched a ‘double thumbs up’ feature so that members can better express what they really like rather than just enjoying, allowing us to continue to improve our personalized recommendations and overall experience.”

Pictured above (left to right): Project Adam and Bridgerton Season 2.

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