Netflix shares lost a quarter of their value on Tuesday after the company revealed that its subscriber ranks shrank in the first quarter of this year.
It was the first time in a decade that the major television streaming service had lost subscribers. The company blamed the quarter-over-quarter erosion on the suspension of its service in Russia due to Moscow’s invasion of Ukraine.
Netflix ended the first quarter of this year with 221.6 million subscribers, slightly less than the last quarter of last year.
The Silicon Valley tech firm reported net income of $1.6 billion in the recently ended quarter, compared to $1.7 billion in the same period a year earlier. Shares of Netflix fell more than 25 percent to $259.30 in after-market trading that followed the release of the earnings figures.
Netflix believes that factors hindering its growth include subscribers sharing their accounts with people who don’t live in their households.
The streaming giant estimated that while it has nearly 222 million paying households for its service, accounts are shared with more than 100 million other households that don’t pay subscription fees.
“When we were growing fast, it wasn’t a high priority, and now we’re working very hard on it,” Chief Executive Reed Hastings said of the account swap during an earnings call.
“These are over a hundred million households that are already choosing to watch Netflix; they love the service, we just have to get paid for it.”
Netflix is testing ways to make money from people who share accounts, like adding a feature that lets subscribers pay a little more to add other households.
“If you have a sister, let’s say she lives in a different city and you want to share Netflix with her, that’s great,” chief product officer Greg Peters said on the earnings call.
“We are not trying to close that exchange, but we will ask you to pay a little more to be able to share with her.”
Another factor hampering Netflix’s growth is intense competition from titans like Apple and Disney.
Netflix and its rivals in streaming TV are also facing a rate of inflation that likely has people taking stock of how many entertainment subscriptions they’ve racked up, according to analyst Rob Enderle of the Enderle Group.
“With inflation taking hold, people are starting to watch their pennies,” Enderle said. “You get a situation where people are thinking about the subscriptions they have and the subscriptions they keep.”
A big player in the market like Netflix will find it difficult to grow in that kind of economic environment, especially in a market like the United States where it is deeply penetrated, Enderle told AFP.
Netflix recently announced subscription price increases in the US, with the basic option now costing $9.99 and the most expensive going up to $19.99.
Netflix is considering possibly adding a lower-priced, ad-subsidized subscription tier, a model Hastings had long rejected.
“It’s pretty clear that it’s working for Hulu,” Hastings said.
“If you still want the ad-free option, you can have that. If you prefer to pay a lower price and are ad tolerant, we’ll accommodate that as well.”
Weaving ads into Netflix for revenue is “inevitable” given recent earnings numbers, Upholdings portfolio manager Robert Cantwell said.
The streaming TV race is heating up, and Disney showed earlier this year that it was closing the gap with market leader Netflix, whose pace has slowed.
Like the Amazon-bred Prime video streaming service, Disney is copying Netflix’s tactic of investing in local content that appeals to the language, culture and tastes in respective international markets.