Netflix Shares Fall as New Subscriber Numbers Disappoint

Netflix Inc. (NFLX, Financial) saw its stock price plummet in late trading yesterday, the result of disappointing subscriber growth in the final quarter of 2021. The streaming video company’s stock closed at $508.25 yesterday, down 1.48%, then fell to $405.50 after closing, down $102.75 per share, or 20.22%.

During the final quarter of the year, Netflix collected 8.28 million net new subscribers, short of its 8.5 million projection. It currently has a reported 221.8 million subscribers around the world.

Netflix’s projections for the current first quarter “were even lighter,” reported Barrons. “It is projecting 2.5 million net adds, versus analysts’ forecast of 5.7 million. That’s going to exacerbate concerns that the company’s business is maturing… The results raise fresh questions about the company’s ability to grow given a nearly saturated market in the U.S. and Canada.”

The company reported in a letter to shareholders that full-year revenue of $30 billion grew 19% year over year while operating income of $6.2 billion rose 35% year over year. “We finished Q4 with 222m paid memberships (with 8.3m paid net adds in Q4). Even in a world of uncertainty and increasing competition, we’re optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world. We're continually improving Netflix so that we can please our members, grow our share of leisure time and lead in this transition.”

"Revenue in Q4 grew 16% year over year with a 9% increase in average paid memberships," the letter continued. "ARM rose 7% year over year on both a reported and foreign exchange (F/X) neutral basis, two percentage points faster than Q3’21 (ex-F/X). Operating margin for Q4 amounted to 8%, a six percentage point decrease vs. the year ago period."

“The decline in operating margin was expected given our large content slate in Q4 this year. Operating margin was above our beginning of quarter forecast of 6.5% due to slightly lower than forecasted content spend. As a result, our full year operating margin was 21% vs. 18% in 2020, above our 20% guidance forecast.”

“Covid has introduced so much noise,” the company’s Chairman and co-CEO Reed Hastings opined in a video call. Ted Sarandos, co-CEO and content head, insisted that “All the fundamentals are pretty solid.”

“Still,” noted the Wall Street Journal, “the results aren’t what Mr. Hastings was expecting last October when he predicted a big end-of-the-year finish for the company because of the return of hit shows and new movies including the action film 'Red Notice.'”

Executives also pointed fingers not just at Covid-19 but at the sheer amount of competition for viewers coming from streaming platforms such as Disney’s (DIS, Financial) Disney+ and AT&T Inc.’s (T, Financial) HBO Max. Netflix’s Chief Financial Officer Spencer Neumann suggested in a video conference that the number of net new subscribers was dropping due to “COVID overhang” as well as a “marginal impact from competition.”

A shortage of new original programming was also cited by management as having influenced their forecast. “Netflix unloaded a wealth of new content in the holiday quarter,” marketwatch.com pointed out, “including new seasons of popular TV hits like ‘The Witcher’ and ‘Emily in Paris’ as well as some of the biggest movies the service has ever launched, like ‘Don’t Look Up’ and ‘Red Notice,’ and isn’t expecting big new releases until later in 2022.”