Netflix announced on Tuesday that it had lost 200,000 members internationally in the first quarter of the year, the first time there has been a subscription loss since October 2011. The company had earlier predicted that it would add 2.5 million paying customers for the current quarter. But it now expects to lose two million customers during the period.
Shares fell by 35 percent on Wednesday, wiping off over $50 billion in market cap. Netflix is now the stock with the worst performance this year in the S&P 500 following a decline of 62.5 percent.
“Our revenue growth has slowed considerably,” Netflix said in a letter to shareholders. “COVID 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.”
The company blamed “macroeconomic weaknesses” and changes in pricing for the fall in membership. The platform announced plans to raise monthly subscription fees in the United States by $1 to $2 earlier this year.
According to the company, 600,000 people stopped subscribing to Netflix in the United States and Canada due to price changes. Suspending services in Russia in the aftermath of Moscow’s invasion of Ukraine led to a loss of 700,000 subscribers, it added.
Netflix estimated that around 100 million households are sharing passwords with non-paying households, with the United States and Canada having more than 30 million such cases.
The platform is planning to allow password sharing with someone outside a household for a nominal fee. Netflix had around 222 million subscribers at the end of Q1, 2022.
At least nine companies downgraded the stock after the dismal subscriber numbers came out. “Although their plans to reaccelerate growth (limiting password sharing and an ad model) have merit, by their own admission they won’t have noticeable impact until ’24, a long time to wait on what is now a ‘show me story,’” analysts at the Bank of America said in a note on April 20.
Wells Fargo also downgraded Netflix stock, pointing out that the platform’s negative subscriber growth and investment push to drive up revenues are a “nail in the NFLX narrative coffin.”
The announcement also affected stock values of other companies with similar streaming services. Disney shares closed lower by 5.5 percent, Warner Bros. Discovery by 6 percent, Paramount by 8.6 percent, and Roku by over 6 percent.
Jim Bianco, president of financial market research firm Bianco Research in Chicago, predicted that some portfolio managers could buy Netflix shares since the stock might be seen as being deeply discounted.
“I think it’s going to take some time for them to start to recognize whether or not Disney and Roku (ROKU.O) and Netflix and Hulu and Paramount might not be growth companies anymore, that they might have hit their saturation point,” Bianco said, according to Reuters.