Stalled Netflix! In the first quarter, paid users grew negatively, and the market value evaporated by nearly 50% in a week

Recently, streaming giant Netflix released its first quarter 2022 financial report showing that the first quarter revenue was $7.87 billion, an increase of 9.8% year-on-year, and the number of global paid subscribers lost 200,000, while the company's previous forecast was to increase by 2.5 million. This set of data not only triggered a hot discussion in the market, but also quickly transmitted to the stock market, and within a day, Netflix's stock price fell by up to nearly 40%. William Ackman, a billionaire investor and founder of hedge fund Pershing Square, said his fund sold its stake in Netflix at a loss.

The first time paid users are lost

During the pandemic, the number of users and stock prices of Netflix's streaming services hit new highs, and viewers who were locked down by the pandemic had to choose to watch movies and TV shows indoors to pass the time. Today, with the normalization of the epidemic, Netflix, which has eaten the dividends of the "home economy", seems to have been beaten back to its original form.

Netflix's 10-year subscriber growth came to an end in this earnings season, and what is more worrying to the market is that Netflix expects to lose another 2 million users in the coming months.

After the release of the earnings report, Netflix's stock price opened sharply, during which it fell to $212 / share, the lowest value since the end of March 2018, the market value instantly evaporated more than $40 billion, and the next few trading days also failed to stop falling, as of the close of Beijing time on April 26, Netflix reported a close of $198.4 / share, the stock price in a week was almost waist-cutting, the total market value of $88.1 billion, compared with the highest point of 701 U.S. dollars / share in November last year has fallen by 70%.

In response to the slowdown in growth and user loss, Netflix gave four main factors: the slowdown in the growth rate of broadband households; user sharing accounts, in addition to 222 million paying users, Netflix expects more than 100 million users to use shared accounts; competition has intensified, in the past three years, many new streaming services have emerged; macro factors, such as economic growth, inflation, geopolitical events, etc., especially the Russian-Ukrainian conflict led to its loss of 700,000 users.

However, even if the user loss caused by this unexpected event is excluded, Netflix's user growth in the first quarter is only 500,000, far less than the previous expectation of 2.5 million. In addition, under the regional segmentation, the loss of paid users in the United States and Canada was 640,000, and the loss of paid users in Latin America was 350,000, and only the Asia-Pacific region increased by 1.09 million.

Compared with the pressure brought by the macro environment, the fierce competition in the streaming media track and the decline in the willingness of users to pay are a "big test" faced by Netflix.

Traditional entertainment companies are also aware of the strategic value of streaming media, for example, the American film and television giant Warner Bros. in 2020 to recover the broadcast rights of "Friends" produced by it on the Netflix platform, transferring it to HBO Max, a new streaming service platform launched by Warner Bros. in the spring of 2020, the addition of traditional entertainment companies has led to more fierce competition in this track, but also laid more uncertainty for the series currently owned by Netflix, whether other companies will take back the series like Warner, Launching your own streaming platform? The answer is still uncertain, but such questions wear down investors' confidence in Netflix. Compared with platforms with their own stable IP such as Disney, if the traditional entertainment industry enters the streaming media, Netflix will undoubtedly be more affected.

In addition to the threat of traditional streaming media giants, Netflix is also facing challenges in short video applications. Relevant data shows that with the emergence of short video applications such as TikTok and Twitch, the time users spend on streaming platforms has decreased by 20%.

Bowing to ads? Find new growth points

From the current business point of view, Netflix's main revenue is still from subscription revenue, subscription revenue in the first quarter of 7.828 billion US dollars, an increase of 10.04% year-on-year, under the premise of user loss, this part of the increase is mainly from the growth of single-user payment. Nanduwan Finance News agency reporter noted that in January, Netflix raised the subscription price, the price of basic subscription, standard subscription support for two terminals and premium subscription rose to 9.9 US dollars, 15.49 US dollars, 19.99 US dollars, compared with competitors, this price is not competitive.

Netflix said that the existence of 100 million shared accounts is an important factor preventing user growth, and it is obvious that such a reality is difficult to match Netflix's "optimistic" expectation that "all broadband users will become our users".

Netflix's response strategy is to adjust the charging model, on the one hand, to get benefits from 100 million shared accounts, that is, to convert some of its traffic into paying users by further restricting account sharing; on the other hand, Netflix plans to get rid of the previous setting of no ads, try to introduce lower price advertised membership subscription prices, and set up tiered pricing packages.

In addition, under the current situation of weak growth of the main streaming media business, Netflix has chosen to walk on multiple legs.

In November 2021, Netflix launched its own game platform, Netflix Game, all services are included in Netflix membership, no ads, no additional fees, no in-app purchases. At present, 17 games such as "Stranger Things: 1984" and "Dungeon Dwarves" have been launched, some of which are adapted from film and television IP. Since last year, Netflix has acquired 3 game developers in a row.

Netflix CEO Hastings said in an interview in January that their goal is to enrich their game category by 2022, and the ultimate goal is to enter the ranks of the "absolute best" in the industry.

Industry insiders also generally believe that games will be the next growth point of Netflix, and game practitioners also have greater expectations for the development of Netflix's game business. But what is surprising is that Netflix did not set the game business as a clear growth point in the financial report, and at present, the game is still only as an added value for Netflix members to provide users with more value, and does not bring additional revenue. In terms of investment, Netflix still maintains a relatively cautious strategy, planning to open up new space in the integration of movies and games and interactive games.

On the contrary, Netflix is still focused on tradition, saying that it will continue to optimize the production of dramas and product services, and expects the sequels of popular dramas launched this year to drive business growth. However, in the face of competitors around and the decline in users' willingness to pay, the growth of income has become a struggle between Netflix and consumers - or consumers willingly accept Netflix's price increases, or Netflix is abandoned by consumers in the process of raising prices.

It is worth noting that some Netflix employees have said that the volatility of the stock price has erased the value of all the stock options the company has issued to employees since 2018, and many employees want to leave. What the future of the market is not yet known, but the reality that two consecutive quarters of earnings reports have triggered huge fluctuations in stock prices tells Netflix that it must perform better to stabilize the confidence of the market and employees.

Written by: Nandu Bay Finance Agency reporter Ye Lu intern Duan Xinyu