Why Are People Leaving Netflix? Its Subscriber Count Dropped in the First Quarter
By Mohit Oberoi, CFAApr. 20 2022, Published 6:50 a.m. ET
Netflix stock has been having a tough year and looks set to continue its dismal run. When the streaming giant reported its Q1 2022 earnings on April 19 after markets closed, it disclosed that its subscriber count dropped by 200,000 in the quarter. Why are people leaving Netflix?
It's the first time in over a decade that Netflix has lost subscribers. The company added 8.28 million subscribers in the fourth quarter of 2021 and predicted that it would add 2.5 million subscribers in the first quarter, but disappointed. NFLX stock is crashing as markets are apprehensive over the company’s growth outlook.
Netflix’s subscriber growth has been disappointing
Netflix's paid subscriber count grew during the first half of 2020, after COVID-19 lockdowns forced people to stay at home. However, since then, its subscriber numbers have mostly disappointed: in the first quarter, in addition to missing its own estimate, it missed analysts' estimate of 6.93 million added subscribers.
Netflix lost subscribers as it exited Russia
Like many other U.S. companies, Netflix exited its business in Russia after the country invaded Ukraine, losing 700,000 Russian subscribers in the first quarter. (If we adjust for Russia, Netflix added a net 500,000 subscribers that quarter, with 0.4 million additions in Europe, the Middle East, and Africa.)
The company also lost almost 640,000 subscribers in North America, in addition to losing subscribers in Latin America. Whereas Netflix added over a million subscribers in the Asia-Pacific region, it's not a very profitable market for the company.
Why did Netflix lose subscribers in the quarter?
Even after adjusting for the Russia exit, Netflix’s net subscriber number in the first quarter was 2 million lower than what it had guided for. The company attributed the low subscriber numbers to several factors:
- Password-sharing and rising competition. (Netflix estimates that 100 million people watch its videos through password sharing, and 30 million of these are in the lucrative North American market.)
- High penetration in the streaming industry.
- Stay-at-home trends spurred by COVID-19 lockdowns have faded.
Netflix seems to be past its prime
Netflix expects to lose another 2 million subscribers this quarter, blaming price hikes and weak customer acquisition. The second quarter tends to be slower for the company as well.
Before its Q4 2021 earnings release, Netflix maintained that it didn't see competitive headwinds in the streaming industry, and thought that streaming would continue to take market share from linear television. However, for two quarters now, it has admitted to pressure from competing streaming services. With companies such as Disney expanding aggressively into streaming, it would be fair to say that Netflix is past its prime.
