By Yasin Ebrahim
Investing.com - Netflix (NASDAQ:NFLX) reported Tuesday mixed first-quarter results as revenue missed Wall Street estimates after the streaming giant reported an unexpected decline in subscribers for the first time in more than a decade.
Netflix announced earnings per share of $3.53 on revenue of $7.87 billion. Analysts polled by Investing.com anticipated EPS of $2.95 on revenue of $7.9 billion.
Netflix shares lost more than 25% in after-hours trading following the report.
For the first quarter of 2022, the company lost 200,000 subscribers, confounding its own expectations for 2.5 million net subscriber adds. Analysts had expected about 2.8 million net adds. Netflix last reported a subscriber loss in 2011.
The loss in subscribers comes as the streaming giant implemented price hikes in developed markets including the U.S. and Canada, while the loss of Russian subscribers as - the company suspended its services in the country - also weighed.
"The suspension of our service in Russia and winding-down of all Russian paid memberships resulted in a -0.7m impact on paid net adds; excluding this impact, paid net additions totaled +0.5m," Netflix said. "The main challenge for membership growth is continued soft acquisition across all regions."
Looking ahead, there isn't any sign of a rebound in subscriber growth as Netflix forecast second-quarter net paid subscribers to decline 2.0 million compared with 1.5 million net adds in the year ago quarter.
Netflix enjoyed a surge in subscriber growth during the pandemic, but saw growth in slow in 2021 due to what it believed was pull forward Covid demand. But the dismal numbers to kick off 2022 has forced the company to reassess the factors weighing on revenue growth. The streaming giant blamed four factors including subscribers sharing passwords and jump in competition from newly launched streaming services.
[W]e estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets - an issue that was obscured by our COVID growth," Netflix said.
Some on Wall Street have also flagged the company's "content dumps" as a reason for subscriber churn.
"Content dumps, where all episodes of a new season are delivered at the same instant, will likely keep churn high, as price conscious consumers can swap out of Netflix and shift to a competitor service after viewing the content they desire," Wedbush said in a note ahead of the Netflix's quarterly report.
Netflix has, however, charted a course beyond its core domestic markets in search of subscriber growth.
"Subscriber growth will likely occur primarily in less developed regions at lower subscription prices, with Western subscribers paying higher rates to fund new content," Wedbush added.
But the latest figures show that Netflix still has work to do as Q1 paid net additions dropped in the EMEA, LATAM, and APAC regions compared with a year ago.