Netflix is witnessing a massive sell-off in shares after the streaming giant reported its first subscriber loss globally. Shares plunged 25 percent after data showed the customer base shrank by 2,00,000 subscribers during the January-March period.
The erosion in Netflix stock has been stupendous, with investors losing a cumulative $150 billion in about four months as the shares plummeted to half their value so far this year.
Russia Pullback
The major reason behind the sharp drop in numbers was the streaming service's decision to pull out from Russia in the aftermath of Moscow's Ukraine invasion. Netflix lost a whopping 700,000 subscribers after it pulled out of Russia.
As of the end of March, Netflix has a global customer base of 221.6 million.
Netflix is anticipating as many as 2 million subscribers to leave it in the April-June period. In comparison, Netflix added more than 18 million subscribers in 2021, followed by a gigantic 36 million new subscribers during 2020. However, with the pandemic ending Netflix is no longer able to get the sign-up boost from a huge pool of captive audience stuck at home.
Pandemic Surge
In fact the surge in the customer base during the pandemic had made Netflix oblivious to some of the systemic threats to customer growth. The company estimates that nearly 100 million households watch the service for free by sharing user names and passwords. In the US and Canada alone, as many as 30 million watch Netflix using the account of a family member or friend.
"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," Netflix said Tuesday in a letter to its shareholders, the Associated Press reported.
Account Sharing
Now, Netflix says it will crack down on the sharing of subscriber passwords. The company has already rolled out a pilot project in Chile, Peru and Costa Rica, under which subscribers are allowed to add up to two people for an additional fee. Netflix says it considers expanding that package globally to stem revenue loss.
Netflix has seen stiff competition in the market in the last two years, with rivals like Disney Plus, HBO Max, Peacock, Paramount Plus, Apple TV Plus and Discovery Plus making steady inroads into the fast expanding streaming market.
"Consumers have always had many choices when it comes to their entertainment time — competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering," Netflix said in January after reporting the Q4 earnings.
To boost revenues in a challenging market, Netflix is also mulling ads to its platform, though this option was always vehemently rejected by Netflix in the past. Currently, the plan is to introduce a cheaper, ad-supported option for customers, and this offer could be rolled out in the next year.
"Those who have followed Netflix know that I've been against the complexity of advertising and a big fan of the simplicity of subscription ...But as much as I'm a fan of that, I'm a bigger fan of consumer choice.," Netflix CEO Reed Hastings said.
Shares of Netflix Inc ended trading on Nasdaq on Tuesday at 348.41, slipping more than 42 percent year-t0-date.
