new York With its outlook for the current quarter, Netflix has disappointed the experts’ expectations and sent its shares plummeting after hours. The streaming service announced sales ($8.2 billion) and profit ($1.7 billion) for the first quarter just ended, in line with forecasts.
However, the number of new customers, at 1.75 million, also fell short of the almost 2.1 million expected. In the same period last year, the number of subscribers had fallen by 200,000. For the first time in more than a decade, the group had to accept a decline in the number of customers.
Netflix shares initially lost eleven percent in after-hours trading on Tuesday. It later recovered somewhat, but was still down 1.5 percent.
According to the Jefferies analysts, at the beginning of the year the release of important successful productions such as “Harry & Meghan” or “The Crown” was missing. Above all, series from non-English-speaking countries such as the Korean drama “The Glory” or the third season of the Mexican series “La Reina del Sur” have attracted viewers. Although “Nothing New in the West” won the Oscars in March, it was released in 2022.
Netflix is the first major tech company to present its numbers and is therefore under close scrutiny. Analyst Sophie Lund-Yates of Hargreaves Lansdown expects the first quarter of 2023 for the tech industry to be “the worst it has been since the pandemic began.” Figures are expected from Tesla on Wednesday, followed by Google, Microsoft, Meta and Amazon next week .
Tough competition
Netflix is struggling with stiff competition from Amazon Prime, Disney+ and, in the future, the new streaming provider Max from Warner Bros. This is the successor to the HBO Max offering and will also contain content from Discovery+ in the future. Max launches May 23rd in the US and is currently heavily promoted.
In order to stand up to the new competitors, Netflix also relies on those who already use the service – so 100 million people share passwords for the service without paying for it themselves. As a result, the group had taken action against the sharing of passwords in some countries in the past few months.
Netflix announced on Tuesday that they wanted to slow down here. According to analysts, the move will result in some customers leaving the streaming service. They still expect those users to come back. Netflix could add more than 10 million new subscribers if it converts users into paying customers, Rosenblatt Securities analyst Barton Crockett said.
According to Raj Shah from the consulting firm Publicis Sapient, the cheap version of the subscription, financed by advertising and introduced in four countries, is not a great success. “Netflix has always eschewed advertising, so it’s no surprise that switching to an advertising platform is proving more difficult than promised. Netflix needs much more than 1.75 million new users for the advertising business to be a significant revenue stream.”
However, it is positive that “there is hardly any downgrading among the existing premium subscribers”, i.e. a change to the cheaper subscription, emphasizes Shah.
In November, after much hesitation, the streaming service provider added an ad-supported subscription with lower monthly fees to its range. There, viewers see about five minutes of advertising per hour. Competitors like Disney+ or HBO Max already offer something similar or are about to.
The move came in response to the loss of 1.2 million customers in the first half of last year. The background was the fierce competition, the weakening economy and the exit from the Russian market. According to experts, advertising revenue will continue to gain in importance in the long term.
No more DVD shipping
Shortly before the release of its quarterly figures, Netflix announced that it would be ending its DVD rentals by mail after 25 years. The last silver discs would be sent out on September 29, the company announced on its blog under the title “Netflix DVD – The Last Season”. The shipping business continued to decline. Netflix was founded in 1997 and launched the rental service a year later. The DVDs were mailed in distinctive red envelopes.
Netflix’s guidance for the current quarter calls for revenue of $8.2 billion and earnings per share of $2.86. However, experts surveyed by Refinitiv assumed it would be just under 8.5 billion and $3.05.
With material from Reuters.
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