Netflix lost 200,000 subscribers in Q1 and expects to lose another 2 million in the current second quarter, the streamer said in its first-quarter 2022 earnings release Tuesday.
In January, Netflix reported it had 221.84 million subscribers at the end of 2021. During the three-month period that ended March 31, a time span that included the debuts of “Bridgerton” Season 2 and “The Adam Project,” Netflix says its total fell to 221.64 million subs.
The streaming service previously forecast 2.5 million paid net adds in Q1, while Wall Street analysts expected Netflix to add 2.8 million new subscribers worldwide in the first quarter vs. 3.98 million in the year-earlier period, according to FactSet. So the expectation it would perform poorly compared to previous quarters was a given — the fact it actually lost subs is quite shocking. Netflix cites both increased competition and password-sharing, which the streamer is looking to monetize, as drivers of this subscriber loss.
Netflix stock closed Tuesday at $348.42 per share. In after-hours trading, the stock fell more than 22% following Netflix’s Q1 subscriber loss reveal and projections for deeper loss in Q2.
In terms of its Q1 financial results, Netflix beat Wall Street’s expectations for earnings but lost on revenue. Analysts forecast earnings per share (EPS) of $2.89 on $7.93 billion in revenue, according to analyst consensus data provided by Refinitiv. On Tuesday, Netflix reported diluted EPS of $3.53 on $7.868 billion in revenue. Revenue was up 9.8% versus Q1 of 2021.
Operating income was reported at $1.97 billion with an operating margin of 25.1%. Netflix had a net income of $1.6 billion for the quarter.
The company said net cash used in operating activities totaled $923 million, with free cash flow reported at $802 million.
“Our revenue growth has slowed considerably as our results and forecast below show,” Netflix said in a letter to shareholders that accompanied its Q1 earnings release. “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.”
Netflix cited four reasons behind its subscriber loss:
“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.”
“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.”
“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.”
“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.”
Per Netflix, “Our plan is to reaccelerate our viewing and revenue growth by continuing to improve all aspects of Netflix — in particular the quality of our programming and recommendations, which is what our members value most. On the content side, we’re doubling down on story development and creative excellence, which we see reflected in big Q1’22 TV hits like ‘Bridgerton’ (627 million hours viewed for Season 2, our biggest English language series in our history) and ‘Inventing Anna’ (512m hours viewed) — both from our extremely successful partnership with Shonda Rhimes — and films like ‘Tinder Swindler’ (166m hours viewed, our biggest documentary film ever released) and ‘The Adam Project’ (233m hours viewed), which come on the back of our Q4 hits ‘Red Notice’ and ‘Don’t Look Up.’ On the product side, we recently launched ‘double thumbs up’ so members can better express what they truly love versus simply like — enabling us to continue to improve our personalized recommendations and overall experience.”
Netflix executives will present a pre-recorded virtual earnings interview at 6 p.m. ET to discuss the quarter in greater detail.
Pictured above (l. to r.): “The Adam Project” and “Bridgerton” Season 2
From Variety US