Global streaming giant Netflix has suffered the first loss in worldwide subscribers in more than a decade and predicted more contraction in the second quarter, a rare miss for a company that has been a reliable growth engine for investors.
Netflix's customer base fell by 200,000 subscribers during the January-March period, according to a quarterly report released Tuesday, deepening troubles that have been mounting since enjoying a surge from a captive audience locked down during the coronavirus pandemic’s early stages.
That was far worse than a conservative gain of 2.5 million subscribers forecast by Netflix management. Its decision in early March to suspend service in Russia after it invaded Ukraine resulted in the loss of 700,000 members.
The company's stock plunged 23% in after-market trading, erasing $30 billion in market value.
Netflix's poor results pummeled other video streaming-related stocks, with Roku dropping over 6%, Walt Disney falling 3% and Warner Bros Discovery down 2%.
Netflix, which currently has 221.6 million subscribers, last reported a loss in customers in October 2011.
Netflix offered a gloomy prediction for the spring quarter, forecasting it would lose 2 million subscribers, despite the return of such hotly anticipated series as "Stranger Things" and "Ozark" and the debut of the film "The Grey Man," starring Chris Evans and Ryan Gosling. Wall Street targeted 227 million for the second quarter, according to Refinitiv data.
First-quarter revenue grew 10% to $7.87 billion, slightly below Wall Street's forecasts of $7.93 billion. It reported per-share net earnings of $3.53.
"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," Netflix said, explaining the difficulties of signing up new customers.
The world's dominant streaming service was expected to report slowing growth amid intense competition from established rivals like Amazon, traditional media companies such as Walt Disney and the newly formed Warner Bros Discovery and cash-flush newcomers like Apple.
Streaming services spent $50 billion on new content last year, in a bid to attract or retain subscribers, according to researcher Ampere Analysis. That's a 50% increase from 2019, when many newer streaming services launched, signaling the quick escalation of the so-called "streaming wars."
As growth slows in mature markets like the United States, Netflix is increasingly focused on other parts of the world and investing in local language content.
"While hundreds of millions of homes pay for Netflix, well over half of the world's broadband homes don't yet – representing huge future growth potential," the company said in a statement.
Netflix has been able to increase subscription prices in the U.S., the United Kingdom and Ireland to fund content production and growth in other parts of the world, such as Asia, noted Wedbush analyst Michael Pachter. However, subscription prices in these growth markets are lower.
Benchmark analyst Matthew Harrigan warned that the uncertain global economy "is apt to emerge as an albatross" for member growth and Netflix's ability to continue raising prices as competition intensifies.
Streaming services are not the only form of entertainment vying for consumers' time. The latest Digital Media Trends survey from Deloitte, released in late March, revealed that Generation Z, those consumers aged between 14 and 25, spend more time playing games than watching movies or television series at home or even listening to music.
The majority of Gen Z and Millennial consumers polled said they spend more time watching user-created videos like those on TikTok and YouTube than watching films or shows on a streaming service.
Netflix, recognizing the shift in consumer entertainment habits, has begun to invest in gaming, but it does not yet contribute materially to the company's revenue.