Netflix Shares Sink as Company Sees Subscriber Growth Slowing

Revenue rose 16% to $7.71 billion in the quarter, in line with analysts’ projections of $7.71 billion. The company’s quarterly earnings were $1.33 a share, compared with a profit of $1.19 a year earlier. Analysts were targeting 83 cents a share.

Following the results, shares of Netflix dropped in after-hours trading on concerns about the company’s forecast. Netflix said it sees adding 2.5 million subscribers in the current quarter; a year ago, the company added four million in the same period.

Netflix said its guidance reflected the fact that more of its new content was weighted to the back end of the current quarter, including the second season of “Bridgerton,” expected to launch in March.

“In addition, while retention and engagement remain healthy, acquisition growth has not yet reaccelerated to pre-Covid levels,” Netflix said in its letter to shareholders. The company said several factors were likely to blame, including ongoing Covid-19 overhang and struggling economies in different parts of the world.

Through the close Thursday, the stock had declined nearly 16% in 2022 amid a broader selloff in tech stocks to start the year.

Netflix’s subscriber growth has faded since a surge in sign-ups occurred during the early days of the pandemic in 2020, when lockdowns intended to deter the spread of Covid-19 led people to spend most of their time at home. The reopening of the economy after the rollout of Covid-19 vaccines has helped drive more people away from their screens. Competition has also grown, with the likes of Amazon.com Inc.’s Prime, AT&T Inc.’s HBO Max and Walt Disney Co. ’s Disney+ bolstering their content lineups.

Netflix backloaded 2021 with hits, including the return of the dark drama “You” and the series “Cobra Kai.” Movies such as “Red Notice,” starring Dwayne Johnson, Ryan Reynolds and Gal Gadot, and “Don’t Look Up,” starring Leonardo DiCaprio and Jennifer Lawrence, also were released during the fourth quarter.

“Don’t Look Up,” a satire about a comet that is on a collision course with Earth, logged more than 152 million hours of viewership on the streaming platform in the week ended Jan. 2, making it the most-viewed show on the service as measured by weekly data going back to the summer. The “Don’t Look Up” results come after the success of “Squid Game,” a South Korean dystopian drama that made its debut in September and became a global phenomenon.

Last week, Netflix increased the price for its monthly plans in the U.S. and Canada, the first such boost from the streaming platform since 2020. By contrast, it cut its prices in India last month to better position itself against rivals in a crucial growth market.

Other streaming services offered their own original content late last year. Disney+ experienced a bump in app downloads in December thanks to releases such as “Hawkeye” and “The Book of Boba Fett,” as did ViacomCBS Inc.’s Paramount+ with releases such as “Clifford the Big Red Dog,” “Mayor of Kingstown” and the “Yellowstone” prequel “1883,” UBS Securities analyst John Hodulik said.

Many analysts expect much of Netflix’s growth in the coming year to come from international viewers.

To attract new audiences, Netflix is expected to spend more in those markets. “This international growth will increase pressure for the company to develop more and more localized content, with content costs continuing to rise in lockstep with subscriber growth,” said Michael Pachter, an analyst at Wedbush Securities.

Disney is following a similar playbook.

After reporting a significant slowdown in Disney+ subscriber sign-ups for its fiscal fourth quarter ended Oct. 2, the company on Wednesday made changes to its streaming management and launched a hub dedicated to international content creation. Longtime Disney executive Rebecca Campbell was appointed to oversee the hub.

Write to Kimberly Chin at [email protected]