Netflix’s shares have been declining since the first quarter, following many factors, including the loss of thousands of subscribers—which hasn’t happened in over a decade.

Amid the nosedive of its shares earlier this year, Netflix reported on Tuesday that the exit of thousands of subscribers was one of the many reasons why. While the company has 221.6 million subscribers globally to date, it reported a loss of 200,000 subscribers in the first quarter of 2022 alone. And that’s following initial forecasts of adding 2.5 million subscribers, alongside expectations of losing another 2 million subscribers in the second quarter of 2022.

This report caused the streaming giant’s stocks to plummet by as much as 25% in after-hours trading—another hit to Netflix’s precarious position. In fact, the company’s stock has already fallen by more than 40% year-to-date and its fourth-quarter profit was $1.5 billion, down from $1.7 billion in the year-earlier quarter, which has not happened to Netflix in more than a decade.

What Happened to Netflix?

The decrease in subscribers, profit, and stock value have alarmed the company’s investors. Thing is, all of this was caused by many factors. These include:

Error in Forecast Due to the Pandemic

In a letter to them, Netflix expressed that since its launch in 2007, the company has “operated under the firm belief that internet-delivered, on-demand entertainment will supplant linear TV,” adding that “we’re not growing revenue as fast as we’d like.”

Likewise, the company seeks to explain its forecast, saying that the pandemic “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.”

Password Sharing

Netflix adds that aside from competition from traditional media companies that have gotten into the streaming market in recent years, widespread password sharing is another factor in the decline. “In addition to our 222 million paying households, we estimate that Netflix is being shared with over 100 million additional households, including over 30 million in the [the United States/Canada] region,” the company explains.

Macro Factors

From sluggish economic growth to inflation, and geopolitical events like Russia’s invasion of Ukraine, Netflix adds that these have affected the company’s overall value and sales. For example, pulling out of Russia has already cost the company 700,000 subscribers. “Some continued disruption from COVID are likely having an impact as well,” Netflix adds.

Netflix, however, isn’t alone in this struggle. Even other companies have taken a hit, like Disney—one of Netflix’s biggest rivals—which was down by roughly 5% Tuesday evening. Likewise, the company’s bad report is likely to affect the streaming market, especially since many companies have changed their business model to compete with Netflix.

Netflix on Turning the Odds in Their Favor

There are, however, plans to make things better, as Netflix told investors on Tuesday that it will turn the odds in their favor by improving its service. “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,” Netflix expresses.

As for the concern about sharing accounts, the company said that it will focus on how to best monetize sharing in terms of passwords. “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,” the company adds.

With that being said, Netflix said that it has been working on how members who share outside their household can do so easily and securely, while also paying a bit more. “While we won’t be able to monetize all of it right now, we believe it’s a large short-to mid-term opportunity,” it opines.

“This focus on continuous improvement has served us well over the past 25 years,” Netflix ends. “It’s why we are now the largest subscription streaming service in the world on all key metrics: paid memberships, engagement, revenue, and profit.”


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