Netflix’s subscriber growth slows as streaming rivals challenge its market share
After experiencing a meteoric spike at the beginning of the pandemic, Netflix’s subscriber growth is slowing down.
The Los Gatos-based streamer on Thursday reported that it added 8.3 million subscribers in the fourth quarter, falling short of its initial forecast of 8.5 million. Last year, Netflix added 18 million subscribers, compared with 37 million in 2020.
In after-hours trading, Netflix stock fell nearly 19% to $415.10 on Thursday following the company’s earnings report.
Still, the streaming service said it remains confident in its growth and its 222 million-strong subscriber base, despite increasing competition. Netflix has invested in growing its slate of foreign-language series and last year had huge success behind the Korean show “Squid Game.” More than 90% of Netflix’s membership growth in 2021 came from outside the U.S. and Canada, the company said.
“Even in a world of uncertainty and increasing competition, we’re optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world,” Netflix said in a letter to shareholders on Thursday.
Netflix’s Global Head of TV, Bela Bajaria, discusses the company’s programming strategy and why foreign-language shows are taking off on the platform.
Netflix’s revenue rose 16% to $7.7 billion in the fourth quarter, compared with a year ago. The company’s net income was $607 million, or $1.33 per diluted share, beating analysts’ expectations.
For the full year, Netflix’s revenue increased 19% to nearly $29.7 billion. Net income was $5.1 billion in 2021, compared with $2.76 billion in 2020.
The results come as Netflix stock has declined since the end of November, as some analysts were concerned Netflix would not meet its internal forecast of growth of 8.5 million subscribers in the fourth quarter. An average of analyst estimates by FactSet projected Netflix would add 8.2 million subscribers from October to December.
Netflix executives on Thursday said one factor could be macroeconomic strain during the pandemic in areas like Latin America.
Last week Netflix increased its price in the U.S., an area where many analysts believe the streamer could be hitting close to the ceiling on new subscribers. The price of Netflix’s most popular subscription, the standard plan, went up $1.50 to $15.49 a month in the U.S., making Netflix the most expensive streaming service. Streaming rival HBO Max is priced at $14.99 a month.
Netflix on Friday said it is raising its prices in the U.S. by up to $2.
Many analysts applauded the price increase, saying it will give Netflix more money to invest in content and to search for its next big hit; they don’t expect the hike to cause a significant number of people to drop their subscriptions.
“There’s nobody to catch them [in] volume and quality of content,” said Berna Barshay, an analyst at Empire Financial Research. “It’s still sort of your de facto gateway for people, at least in North America and increasingly around the world.”
In the fourth quarter, Netflix released a number of popular TV shows, including the second season of fantasy series “The Witcher,” the final part to thriller “La Casa de Papel” (titled “Money Heist” in the U.S.) and the second season of comedy drama “Emily in Paris.” Films in the quarter included action flick “Red Notice” and dark comedy “Don’t Look Up,” which are the top-performing English-language films on the streaming service based on hours watched. “Red Notice” garnered roughly 364 million hours of watch time in its first 28 days, according to Netflix.
But Netflix faces growing competition from rivals that have been taking away its market share when it comes to demand for original programming, according to West Hollywood-based Parrot Analytics.
HBO and HBO Max have added 10.7 million customers in the last 14 months.
For example, in the second quarter of 2020, Netflix’s global demand share for digital TV originals was 55%, compared with 45.4% last quarter, according to a Parrot Analytics report authored by analyst Wade Payson-Denney.
“In other words, the gains made by Apple TV+, Disney+, and HBO Max more than account for all of Netflix’s losses in global demand share for original content over the last two years,” Payson-Denney wrote in his report.
On Thursday, Netflix said it believes there is still a lot of runway for its business. In addition to touting successes to programs like “Squid Game,” the company said it racked up the most wins and nominations for Emmys and Oscars for a movie studio and TV network last year.
“While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched,” Netflix said in a letter to shareholders. “This reinforces our view that the greatest opportunity in entertainment is the transition from linear to streaming and that with under 10% of total TV screen time in the US, our biggest market, Netflix has tremendous room for growth if we can continue to improve our service.”
When asked if “Squid Game” would get a second season during an earnings discussion on Thursday, Netflix Co-CEO and Chief Content Officer Ted Sarandos said, “Absolutely. The ‘Squid Game’ universe has just begun.”
The company estimated that it would add 2.5 million subscribers in the first quarter, compared with 4 million a year ago.
Netflix stock closed at $508.25 a share on Thursday, down 1.5%.
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