Netflix subscriber growth slows as economies reopen

Netflix Inc.

NFLX -0.88%

said subscriber growth for the first quarter was lower than expected, a potential warning sign for the company as consumers in many countries begin to emerge from pandemic lockdowns and competition in streaming is increasing.

The company said on Tuesday it had added four million more subscribers on a net basis worldwide between January and March, lower than its forecast of six million.

“It’s just a little wonky right now,” Netflix chairman and co-CEO Reed Hastings said during the company’s video call to discuss the results.

Shares of Netflix fell 8.4% in after-hours trading. The stock has risen almost 26% in the past 12 months.

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The first quarter subscriber gain was well below the 15.8 million increase from a year earlier, when the spread of the coronavirus was intensifying for the first time and people were confined to home and passionate about content.

“There’s an increase in engagement you get when people are in a lockdown situation,” Netflix COO Gregory Peters said at an investor event last month.

Many consumers who get vaccinated are venturing more out of their homes and redirecting spending despite the lingering threat posed by the coronavirus. Airlines seek resurgence on a summer trip. Cinemas and other theaters have reopened in New York, Los Angeles and elsewhere. Restaurants and hotels, both hard hit by closures and restrictions linked to the pandemic, have stepped up recruitment.

Netflix said in a letter to shareholders that it believes subscriber growth has slowed due to the big advantage of Covid-19 in 2020 and a leaner content roster in the first half of this year, due to Covid-19 production delays. “

The company’s weaker-than-expected growth comes as it grapples with its biggest competitive threats. Disney + from Walt Disney Co., which launched just a year and a half ago, already has 100 million subscribers worldwide. Other rivals, including AT&T Inc.’s HBO Max, Apple Inc.’s Apple TV +, and Amazon.com Inc.’s Prime Video, spend a lot on content, driving up programming costs.

Despite the crowded streaming market, Netflix said rivals had not played a role in the company missing its estimates.

“There is no real change that we can detect in the competitive environment” that would have affected the results, Mr. Hastings said. “We really looked at all the data and we don’t see any difference.”

Netflix has said it expects subscriber growth to pick up again in the second half of the year, when some of its most successful shows return with new episodes, including “The Witcher” and “You.” Netflix plans to spend more than $ 17 billion on content this year.

“A lot of the projects we were hoping to release earlier have been pushed,” said Ted Sarandos, Netflix co-CEO and chief content officer.

In recent weeks, Netflix has also taken steps to consolidate its content through acquisitions and licensing deals. He made a five-year deal valued at well over $ 1 billion with Sony Pictures Entertainment for the streaming rights to the studio’s theatrical releases from 2022. It also spent $ 440 million on the directing rights to two of the film’s sequels “Knives Out” with Daniel Craig.

As part of the Sony pact, the two companies will also create original content for the streaming service.

Netflix has announced that it will begin a share buyback program this quarter and has authorized up to $ 5 billion in buybacks.

The company reported quarterly profit of $ 1.71 billion, or $ 3.75 per share, compared to $ 542.2 million, or $ 1.19 per share, for the period a year earlier. Revenue rose to $ 7.16 billion from $ 6.64 billion.

Netflix had forecast net income of $ 1.36 billion and revenue of $ 7.13 billion for the period.

For the first quarter, subscribers in overseas markets continued to drive growth. Netflix reported gaining 1.8 million new subscribers in the region which includes Europe and the Middle East and 1.4 million in Asia. Subscriptions in Latin America increased by 360,000 and in the United States and Canada by 450,000.

Mr Hastings said Netflix has Japan and South Korea “wired” in terms of content. In India, he said, “we are still figuring out.”

The company ended March with nearly 208 million subscribers worldwide. He said he expected to add another million new subscribers in the second quarter, up from more than 10 million for the quarter a year earlier.

Netflix made a number of changes last year amid the surge in new subscribers. The company said in July that it promoted Mr Sarandos to Co-Managing Director. In October, Netflix increased monthly price of its most popular streaming plan from $ 1 to $ 13.99 per month, and its premium offer from $ 2 to $ 17.99 per month.

Last month the company also started experimenting with better password enforcement to prevent users from sharing their accounts. But Mr Hastings said the company would never roll out an initiative that looks like “turning the screw” on consumers when it comes to password sharing.

Creatively, Netflix has been on a roll. His films received 36 Oscar nominations, including two for Best Picture: “Mank” and “The Trial of the Chicago 7.” The Oscars will air this Sunday.

The launch of Disney + brought some magic to a company whose stock had taken a nosedive after the coronavirus shut down theme parks and cinemas. WSJ explains how Disney’s streaming platform has become a top contender in an already crowded field. Photo illustration: Jacob Reynolds / WSJ

Write to Joe Flint at [email protected] and Micah Maidenberg at [email protected]

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