Netflix is losing its sparkle as competitors and the increasing cost of living finally seem to have struck a blow to the streaming giant, with shares falling 25.5% on the back of its announced results.
The company reported a considerable slowdown in revenue growth, with a 9.8% rise to $7.9 million compared to 24.2% in the same period last year, following a 16% growth last quarter.
The group expects the trend to continue, with its Q2 growth forecast at 9.7% after Netflix’s first subscriber loss in 10 years of 200,000 paying members in the first quarter. The streaming said they would lose 2 million over the next quarter.
However, a lower than expected content spend brought Netflix below management expectation with an operating income of $2 billion, with an anticipated expense of $1.7 billion in the upcoming quarter.
The company said that it was currently aiming to maintain an operating margin of approximately 20% as it searches for means to spark off revenue growth and tackle the issue of shared passwords.
The firm noted that an estimated 100 million households are using Netflix without paying the subscriber fee due to shared memberships.
“Households around the world may have racked up a record breaking 627m hours watching Netflix’s smash hit Bridgerton, but a lot of those people weren’t paying,” said Hargreaves Lansdown equity analyst Laura Hoy.
“The streaming service has made its way into just about every home with an internet connection and that’s made it much harder to continue growing revenue.”
The issue has been slightly exacerbated by the service’s withdrawal from Russia, bringing a 700,000 member decline along with the 200,000 drop in new paying subscribers for the first quarter.
In other territories, rising prices saw a 600,000 member decline across the US and Canada, with a 400,000 subscriber fall in Latin America.
However, the streaming firm enjoyed a 400,000 member increase across Europe, the Middle East and Africa.
Netflix noted a current level of 221.6 million paying subscribers over the period, however competitors including Disney+ and Amazon are quickly eating into its subscriber base.
“Price increases helped offset pain from a decline in new subscriber numbers—but the group’s looking for a more permanent way to cope with rising demand on the public’s attention,” said Hoy.
The company paid $3.6 billion on content additions during the term, alongside a net debt of $8.6 billion and a free cash flow rise from $692 million to $802 million, due to rising profits.
The group confirmed its planned acquisition of Next Games in addition to its streaming provision, with the deal scheduled for completion in the second half of the year.
“The group spent over $17bn on content last year, and that’s likely to be a minimum for this year’s spend,” said Hoy.
“Protecting profits is high on management’s priorities with an aim to keep margins over 19%, but as revenue growth stagnates, it’s difficult to see how the group will continue to grow its user base without succumbing to eyewatering content costs.”