Earnings season: Netflix slumps as subscribers slide

Despite posting earnings beats on some key metrics, Netflix shares have taken a tumble following its latest quarterly earnings release.

Netflix earnings

Netflix Q4 2021 headline states

Compared with the streaming service’s third quarter, Q4 has been a disappointment for investors, despite an earnings beat.

Shares plunged 20% in out-of-hours trading as Netflix noted slowing subscriber growth.

Netflix’s key stats for Q4 2021 are:

• Revenue – $7.71 billion vs $7.71 billion forecast.
• Earnings per share (EPS) – $1.33 vs. 82 cents forecast.
• Global paid net subscriber additions – 8.28 million vs 8.19 million forecast

Subscribers are the key metric here. 8.28m new users subscribed to Netflix around the world last quarter. While this was still ahead of Wall Street estimates, it is lower than the 8.5m added in Q4 2020.

In a pre-recorded post-earnings interview, Co-CEO Reed Hastings said: “It’s definitely frustrating for us, the current slower growth.”

“It’s a dynamic market for sure, it may not be as steady as people think about it in terms of, we’re gonna add X number every quarter, every month, every week, but there’s no question that’s the direction the business is going in,” co-CEO Ted Sarandos added.

Increased competition was one of the reasons for the sub slowdown, particularly from the likes of Amazon, Apple, and Disney.

“Consumers have always had many choices when it comes to their entertainment time – competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering,” Netflix said. “While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched.”

In the US and Canada, subscriptions packages will see price increases. In the US, it will now cost an extra $1 a month to access Netflix with a basic plan valued at $9.99. The standard plan jumped from $13.99 to $15.49, and the premium plan rose from $17.99 to $19.99.

The plan seems to be get users entrenched into Netflix exclusive content, then increase the price, thus generating more revenue from static consumers.

Netflix share price

Netflix’s earnings release comes at a tough time for US tech stocks. With the Fed’s hawkish pivot, investors are looking to divest themselves of potentially risky assets with technology stocks on the chopping block.

Coupled with slowing subscription numbers, the tech downturn has caused a 20% drop in the Netflix share price. At the time of writing, Netflix shares were a further 1.38% down on the day.

About $46bn was wiped off Netflix’s value following its earnings release. What’s interesting is it actually showed an earnings beat in Q4 2021. EPS came in at $1.33 vs. 82 cents forecast.

Investors are likely caught up in the wider tech sell-off, but the seeming reliance on price increases against expansion might be giving some cold feet.

What next for Netflix?

More content of course. It released a spate of new seasons of favourites like You and Emily in Paris at the end of 2021, alongside high-performing movies like Don’t Look Up and Red Notice. But with competition from the likes of Amazon and its $1bn Lord of the Rings prequel series Rings of Power, Netflix may have to dig deeper to get more viewers on board.

But there are other sectors to consider for Netflix. Sectors like gaming.

The company has been releasing games based on its popular titles to its subscribers. The new games may help it gain insight into which characters are most popular, which could eventually help shape its content.

“We’re now really getting to learn from all of those games,” COO Greg Peters said.

This isn’t a full on triple AAA gaming experience. Netflix games are mostly mobile apps, which, to be fair, are highly popular. But if you’re expecting the next Call of Duty or Fortnight from Netflix, guess again.

Be sure to check out our earnings calendar to see who is reporting and when this earnings season.