Netflix subscriber base weighed down by changes in consumers on-demand services behavior, Ukraine war

For the first time in more than a decade, Netflix Inc reported a loss citing the war in Ukraine, and fierce competition which led to a loss of subscribers; it has also forecast deeper losses ahead, marking an abrupt shift in fortune for a streaming company that thrived during the pandemic.

In the first quarter of this year, Netflix reported a loss of 200,000 subscribers, falling well short of its earlier forecast of adding 2.5 million subscribers. Suspension of service in Russia along with the war in Ukraine has led to the loss of around 700,000 members.

With the news reaching the market, Netflix’s stock on Wall Street fell by 26%, erasing nearly $40 billion in its stock market value. Following its warning earlier in January of a weaker subscriber growth, Netflix has lost nearly 50% of its value.

As a result, Netflix is now contemplating to offer a lower-priced version of its service with advertising, citing a success in similar offerings by HBO Max and Disney+.

“Those who have followed Netflix know that I’ve been against the complexity of advertising, and a big fan of the simplicity of subscription,” said Netflix CEO Reed Hastings. “But, as much as I’m a fan of that, I’m a bigger fan of consumer choice.”

The video streaming company has also offered a gloomy prediction for the spring quarter, saying it expects to lose 2 million subscribers, despite the return of its highly anticipated TV series “Ozark”, “Stranger Things” and  the debut of its movie “The Grey Man,” starring Chris Evans and Ryan Gosling.

“When we were growing fast, it wasn’t a high priority to work on,” said Hastings in reference to account-sharing in remarks during Netflix’s investor video. “And now we’re working super hard on it.”

Netflix’s reported a 10% growth in its first quarter revenue to $7.87 billion, with a net EPS of $3.53, beating the Wall Street consensus of $2.89.

It has cited a number of factors for its slowdown including the rate at which consumers adopt on-demand services, a growing number of competitors and a slowdwon in the global economy.

These confluences of factors resulted in Netflix reporting losing customers for the first time since October 2011.

“They suffered from a combination of approaching saturation, inflation, higher pricing, the war in Ukraine and competition,” said Michael Pachter, an analyst at Wedbush. “I don’t think any of us expected that all to happen at once.”

Netflix noted that despite intensifying competition, its share of TV viewing in the US continues to hold steady, underscoring subscriber satisfaction and retention.

While its growth in the US is steady, the company has increasingly focused on developing economies and is 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,” said the company in a statement.

Categories: Creativity, Entrepreneurship, HR & Organization, Strategy

Tags: , , , , , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: