Netflix (NFLX) reported an unexpected decline in first-quarter subscribers as the company moves out of Russia and the increasingly crowded North American market. Shares fell by more than 20% in late trading following the report.
Here are some key metrics from the Netflix quarterly report, compared to the consensus estimates compiled by Bloomberg:
- Revenue: $ 7.87 billion vs. $ 7.95 billion expected, $ 7.16 billion Y / Y
- Profits per share: $ 3.53 vs. $ 2.91 expected, $ 3.75 Y / Y
- Total subscribers: -200,000 vs. +2.51 million expected, +3.98 million Y / Y
Netflix's decline in new users has taken Wall Street by surprise, with analysts looking to reduce but positive growth in subscriptions in the first three months of 2022. Subscribers grew by about 4 million in the same quarter last year. In total, Netflix came out in the first quarter with 221.64 million subscribers worldwide.
In the current quarter, Netflix said it expects a significant drop in new users. The broadcaster said it saw subscribers fall by two million in the second quarter, with consensus analysts looking at 2.4 million profits.
"Our influx of high-income families - which includes a host of family-sharing accounts - combined with competition, creates storms of revenue growth," Netflix said in a letter to shareholders on Tuesday afternoon. "The huge increase in COVID in broadcasting has obscured the image until recently."
"While we are working to accelerate our revenue growth - through the development of our service and making more effective family-sharing revenue - we will be holding our operating limit of about 20%," added Netflix. "The key to our success has been our ability to create incredible entertainment from around the world, to bring it in ways that are more personal to you, and to win more views than your competitors."
Netflix has been struggling to reduce user growth over the past year, with new users slowing down after a pandemic-driven subscription. But exacerbating the decline was Netflix's departure from Russia in early March, which came in the wake of the Ukrainian invasion earlier this year. Netflix stated in its letter to investors that suspending the service in Russia had removed 700,000 paid subscribers during the quarter.
The company also said it had seen a decline in enrollment in the U.S. and in Canada, the combined loss of a total of 600,000 paid users. Earlier this year, Netflix announced another price increase for North American viewers, the company identified as the cause of inflation during the quarter, although it added the full effect of inflation "is a huge profit."
Based on these results, some analysts also suggest that Netflix may continue to see high churn levels especially in the US and Canada following this rise in prices. With the rising competition from the likes of Disney +, HBO Max and other newcomers, users now have more options than ever before to turn to Netflix, if they choose to end up subscribing instead, some say.
"Content dumps, where all episodes of the new season are being delivered simultaneously, will likely continue to increase, as price-conscious consumers can switch to Netflix and switch to competing service after viewing their desired content," Wedbush analyst Michael said. Pachter said at the head of the Netflix report. "Sustainable growth growth should continue as long as Netflix continues to raise subscription prices, but competition could slow future price increases."
But while the full North American market has left Netflix with a very small airline to continue to add users, the company's international growth prospects have recently grown relatively comparable. In the first quarter, Netflix added nearly 1.1 million users to its portion of Asia Pacific regions. However, it also releases subscribers to all of Europe, the Middle East and Africa (EMEA) and Latin America (LATAM) parts.
Amid concerns about growing subscribers, Netflix shares have fallen to the point of not performing well in the wider market so far this year. Shares fell 42% in 2022 so far by the end of Tuesday, compared to a nearly 6% decline in the S&P 500 at that time.
