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Netflix Plummets: What Happened?

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Netflix’s share price had its worst performance in a decade on Wednesday, when it fell 35% after the streaming giant reported a loss of subscribers during the first quarter of 2022.

During the first quarter of 2022, Netflix lost 200,000 subscribers and it is expected that it could lose up to 2 million more by the second quarter.

With the advent of the pandemic, Netflix’s share price grew at a rapid pace, placing the company within the group of high-yielding technology companies known as the FAANG (Facebook, Apple, Amazon, Netflix, and Google).

The streaming companies received a massive migration of users during the pandemic, causing the company to grow revenues by 23% and generate revenues of more than $24.9 billion. However, last quarter’s results show that the pandemic effect is over, and now they must deal with new competitors and an audience with less disposable income.

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Despite investing millions of dollars in its own series, Netflix has not been able to captivate the audience’s eye. (Image: EFE)

Wednesday’s plunge represents the most sudden drop in Netflix’s share price since January 2011, when it also fell 35% in a single day. The current decline wiped nearly $50 billion off the streaming company’s market capitalization in one day, which by Tuesday was worth $157 billion.

In January, Netflix’s stock had its first debacle, when it fell 20% following a statement that the company would add far fewer subscribers than expected this year. From the start of 2022 to today, Netflix’s share price has fallen more than 60%.

Other streaming companies also fell on Wednesday, Paramount Global posted a 7 % drop, while Disney’s share price fell 4 %, Warner Bros. share price did the same by almost 6 %, and Spotify’s share price dropped 10 %.

Some personalities have claimed that the drop in Netflix’s user base is due to the expansion of political content on its platform, such as Tesla CEO Elon Musk, who tweeted Tuesday night, “The woke mind virus is making Netflix unwatchable.”

The four reasons for Netflix’s decline

In a letter to shareholders, Netflix’s board of directors identifies four main issues that are affecting the company’s user growth.

First, the growth in adoption of the streaming service has been limited by factors beyond the company’s control, such as the lack of broadband access, or the dominance of cable TV in some regions of the world.

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New competitors in the streaming market have managed to snatch users away from Netflix. (Image: EFE)

Second, in addition to the 222 million households that subscribe to Netflix’s service, there are another 100 million households that make use of these subscriptions for free, including at least 30 million free-riders in the United States and Canada.

The third problem the company identifies is the growth of competitors that have migrated from cable TV to streaming. Companies such as HBO, Peacock & Showtime, and Paramount Pictures have entered the market, offering their own package of movies and series that has caught the attention of former Netflix users.

Finally, Netflix’s board believes that rising inflation around the world, coupled with the slowing economic recovery, is affecting the company’s subscriber growth. Runaway inflation, which has been exacerbated by the conflict in Ukraine, has investors concerned, as consumers faced with rising prices in the economy may choose to stop consuming non-essential goods and services such as streaming.

Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica

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