After experiencing unprecedented growth during the pandemic, Netflix is now losing subscribers.
The global streaming giant said Tuesday that it lost 200,000 subscribers in the first quarter, missing its own projections of adding 2.5 million customers and marking the first decline in a decade.
The company estimated it would lose 2 million global subscribers in the current quarter.
Although Netflix remains the dominant player in streaming with 222 million subscribers globally, it faces rising competition and an inevitable slowdown after a surge in business during the pandemic.
Investors were rattled by the results. After Netflix released its earnings, the shares plunged 23% to $267.68 in after-hours trading.
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Netflix blamed password sharing as an obstacle to its growth, as well as other factors, such as the proliferation of streaming services and the availability of connected TVs in certain markets.
Revenue increased 10% to $7.9 billion in the first quarter, compared with a year earlier. Net earnings were $1.6 billion, down from $1.7 billion in the first quarter of 2021.
“I think people deluded themselves into looking at the planet saying there’s over 2 billion households and ‘Oh, my God, these guys can be like Facebook,’ ” said Michael Pachter, a managing director with Wedbush Securities. “Reality set in.”
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Netflix faces growing competition from rival streaming services, including HBO Max and Disney+. The company’s share of demand for streaming original shows in the U.S. has been declining, dropping to 42.4% in the first quarter from 48.1% a year earlier, according to West Hollywood-based Parrot Analytics.
Streaming services aim to entice people to subscribe with compelling TV series and movies. Although Netflix has not disclosed how much it plans to spend on content this year, some analysts have estimated it will be $19 billion. To offset the large content spend, Netflix raised prices on its subscription plans in the U.S. this year. The cost of a standard plan rose $1.50 to $15.49 a month.
But it’s a delicate balance. In the first quarter, cancellations outpaced sign-ups because of the price increases and the lack of a worldwide hit like the Korean series “Squid Game.” Sign-ups for Netflix fell 16% in the first quarter compared with a year earlier, according to Similarweb. “Squid Game,” released last year, remains Netflix’s most popular show of all time.
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In a letter to shareholders Tuesday, Netflix blamed some of its challenges on customers sharing their passwords with people who don’t live with them. Under Netflix’s terms, users who don’t live in the same household need to pay for a separate subscription.
The company estimates that Netflix is shared with more than 100 million additional households outside its 222 million paying subscriber households.
“Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally,” Netflix said. “However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth head winds.”
Those include the availability of connected TVs and geopolitical events such as Russia’s invasion of Ukraine. Netflix has suspended its service in Russia.
Netflix says it will continue to grow its service by investing in “creative excellence,” pointing to its successful partnership with Shonda Rhimes. In the first quarter, it released its much anticipated second season of her drama “Bridgerton,” which garnered 627.1 million hours of viewing time in its first 28 days, making it the most watched English language series, the company said.
Netflix has sought to grow its customer base abroad by investing in local language productions. For example, Netflix has seen a surge in consumption of Korean content on its platform and this year plans to release at least 25 Korean language titles, up from 15 last year.
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The company also is adding other features to help keep subscribers, including offering free mobile games for customers. In March, Netflix announced plans to buy Finnish mobile game developer and publisher Next Games.
“There are millions of mobile games, and Netflix games are faring better than most of them because most apps do not get tens of thousands of downloads,” wrote Adam Blacker, vice president of insights at Apptopia.