Netflix quietly admits streaming competition is eating into growth

Thu, Jan 20 2022

The latest Netflix shareholder letter included a line heard around the world:

“While this added competition may be affecting our marginal growth some...”

That clause doesn’t sound like much, but it’s Netflix’s strongest admission so far that streaming competition is affecting its subscriber growth.

Typically in Netflix’s competition section, the company claims Netflix competes against many different things (sleep! TikTok!), but other streaming services don’t pose much of a threat. Netflix has routinely argued there’s more than enough streaming viewing time to go around. It did again this quarter, noting that Netflix is still less than 10% of U.S. television screen time.

But acknowledging, even somewhat subtly, that competition is affecting Netflix’s subscriber additions is a uniquely bold declaration for the company, said Michael Nathanson, a media analyst at MoffettNathanson. It’s a signal the streaming giant is finally feeling some competitive affects of other services such as Disney+, WarnerMedia’s HBO Max, ViacomCBS’s Paramount+ and NBCUniversal’s Peacock.

“They have usually dismissed it as a blip,” said Nathanson of rival streamers.

Competitive pressure is particularly important in the U.S. and Canada, where Netflix just raised prices last week, including bumping its standard plan from $13.99 per month to $15.49. If competition is truly starting to erode some growth, it increases the risk that a price hike could increase churn.

Netflix’s content is still in high demand. Six of the top 10 most searched shows globally were on Netflix in 2021, the company noted in its shareholder letter. It had the year’s biggest hit in “Squid Game.”

But investors may be looking for more, leading to plummeting shares after the company forecast just 2.5 million subscribers for the first quarter of 2022, below the 3.98 million it added in Q1 2021.

Netflix’s price increase made its standard plan more expensive than HBO Max. Getting a reputation as the most expensive mainstream streaming service may not help with restarting growth.

Netflix Shares Sink as Company Sees Subscriber Growth Slowing

Jan. 20, 2022

Netflix Inc. said it expects to add a much smaller number of subscribers this quarter than it did a year ago as it adjusts to growing competition and lasting disruptions from the coronavirus pandemic, sending the video streamer’s shares down sharply.

The company on Thursday forecast an increase of 2.5 million subscribers in the current quarter, compared with four million a year earlier. It also slightly missed its subscriber estimate for the fourth quarter, adding 8.3 million subscribers instead of the projected 8.5 million.

Netflix’s subscriber miss came despite a strong content lineup of movies and TV shows in the quarter including new seasons of “The Witcher” and “You.” New movies that performed well included the political satire “Don’t Look Up,” which recently broke the company’s record for weekly viewership.

In its letter to shareholders, Netflix said its subscriber growth rates have “not yet reaccelerated to pre-Covid levels.” The company said among the reasons for that is an “ongoing Covid overhang” and economic difficulties in several parts of the world including Latin America.

Still, the results aren’t what Mr. Hastings was expecting last October when he predicted a big end-of-the-year finish for the company because of the return of hit shows and new movies including the action film “Red Notice.”

“We have so much content coming in Q4 like we’ve never had,” Mr. Hastings told analysts at the time.

The lower subscriber projections for the first quarter come despite the scheduled return in March of “Bridgerton,” one of its biggest hits, and “The Adam Project,” a much anticipated time-travel-themed movie starring Ryan Reynolds and Jennifer Garner.

Additional competition also may be a factor, the company said. In the past, Netflix has tended to play down the competition it is facing from newer streaming platforms including Disney’s Disney+ and AT&T Inc.’s HBO Max.

Disney+ saw a bump in app downloads in December thanks to releases such as “Hawkeye” and “The Book of Boba Fett,” as did ViacomCBS Inc.’s Paramount+ with drops such as “Clifford the Big Red Dog,” “Mayor of Kingstown” and the “Yellowstone” prequel “1883,” said UBS analyst John Hodulik.

Last week, Netflix increased the price for its monthly plans in the U.S. and Canada, the first such boost from the streaming platform since 2020. Netflix isn’t raising prices across the globe. It cut prices in India last month where it has struggled against strong competition in a market it sees as crucial for growth.

The company cited programming expenses as the primary reason for the price increase.

While Netflix has always spent heavily on content, growing streaming competition is driving the company to flood the market with new shows and movies. At the same time, Netflix is canceling shows faster than it used to. New programs have a shorter window to prove themselves than in previous years, producers who work with Netflix said.

Netflix’s revenue rose 16% to $7.71 billion in the quarter, in line with analysts’ projections. The company’s quarterly earnings were $607.4 million, or $1.33 a share, compared with a profit of $542.2 million, or $1.19 a share, a year earlier. Analysts were targeting 83 cents a share.

The operating margin for the quarter was 8.2%, down from 14.4% a year earlier -- a drop the company attributed to its expensive programming lineup for the previous three months.

Netflix said it would be cash-flow positive for the full year of 2022.

A large chunk of the new subscribers were in Europe, the Middle East and Africa, which added 3.5 million subscribers. In the U.S. and Canada, Netflix added 1.2 million, up slightly from the same period a year ago.

Many analysts expect much of Netflix’s growth in the coming year to come from international viewers.

To attract new audiences, Netflix is expected to spend more creating content in those markets. “This international growth will increase pressure for the company to develop more and more localized content, with content costs continuing to rise in lockstep with subscriber growth,” said Michael Pachter, an analyst at Wedbush Securities.

In the U.S., Netflix’s subscriber growth has slowed in recent years, which Mr. Hastings said was frustrating. He said getting two-thirds of the U.S. pay-TV audience to sign up for Netflix was less challenging than getting the remaining third to do so.

Netflix shares crater 20% after company reports it lost subscribers for the first time in more than 10 years

Tue, Apr 19 2022

Shares of Netflix cratered more than 20% on Tuesday after the company reported a loss of 200,000 subscribers during the first quarter.

Here are the results.

• EPS: $3.53 vs $2.89, according to a Refinitiv survey of analysts.
• Revenue: $7.78 billion vs $7.93 billion, according to a Refinitiv survey of analysts.

Wall Street is also watching another key number in the Netflix report.

• Global paid net subscriber additions: 2.73 million expected, according to StreetAccount estimates.

Netflix previously told shareholders it expected to add 2.5 million net subscribers during the first quarter. Analysts predict that number will be closer to 2.7 million. Either figure would mark a significant downturn from the 3.98 million added during the same period in 2021.

Investors’ hyper focus on new paying customers led Netflix shares to plummet 20% after the company’s last earnings report in January. In addition to weaker-than-forecasted fourth-quarter subscriber gains, company executives quietly admitted that competition from other streaming platforms was having a negative impact on its growth.

Netflix has increased its content spend, particularly on originals, amid intense competition in the streaming space. To pay for it, it’s hiked prices of its service. While the company is exploring other options for growth, like adding video games, analysts and investors are wondering what else Netflix can do to bolster revenue.


This is breaking news. Please check back for updates.

The company also said it expects to lose 2 million subscribers in the second quarter.

April 19, 2022

Fellow shareholders,

Our revenue growth has slowed considerably as our results and forecast below show. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently. While we work to reaccelerate our revenue growth - through improvements to our service and more effective monetization of multi-household sharing - we’ll be holding our operating margin at around 20%. Key to our success has been our ability to create amazing entertainment from all around the world, present it in highly personalized ways, and win more viewing than our competitors. These are Netflix's core strengths and competitive advantages. Together with our strong profitability, we believe we have the foundation from which we can both significantly improve, and better monetize, our service longer term.


In the near term though, we’re not growing revenue as fast as we’d like. 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


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Another focus is how best to monetize sharing - the 100M+ households using another household’s account. This is a big opportunity as these households are already watching Netflix and enjoying our service. Sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we've always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households. So early last year we started testing different approaches to monetize sharing and, in March, introduced two new paid sharing features, where current members have the choice to pay for additional households, in three markets in Latin America. There’s a broad range of engagement when it comes to sharing households from high to occasional viewing. So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity. As we work to monetize sharing, growth in ARM, revenue and viewing will become more important indicators of our success than membership growth.

Over the longer term, much of our growth will come from outside the US.

Netflix is exploring lower-priced, ad-supported plans after years of resisting

Tue, Apr 19 2022

After years of resisting advertisements on its streaming service, Netflix is now “quite open” to offering lower priced tiers with ads, co-CEO Reed Hastings said Tuesday.

Hastings has long been opposed to adding commercials or other promotions to the platform but said during the company’s pre-recorded earnings conference call that it “makes a lot of sense” to offer customers a cheaper option.

“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription,” Hastings added. “But as much as I am a fan of that, I am a bigger fan of consumer choice and allowing consumers who would like to have a lower price and are advertising tolerant to get what they want makes a lot of sense.”

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