Netflix: Not Chilling

Netflix is not having a good 2022. This week the company reported that instead of adding 2.5m subscribers, as expected, it lost 200,000 in Q1. To be fair, the net loss was due to Netflix suspending services in Russia to show solidarity with Ukraine. The decision cost Netflix 700,000 Russian users...so the company's subscriber base actually grew by 500,000. However, the company does expect to lose 2m subscribers by July, as noted by Visual Capitalist. 

So, is streaming reaching a saturation point? Are the vast majority of consumers already getting their entertainment from Apps than their cable modems? Not even close, despite the spectacular growth of streaming in the last few years. According to Nielson, "streaming accounted for just 30 percent of total TV screen time in March 2022, with linear TV (i.e., cable and broadcast) still dominating video consumption."

Yes, streaming has overtaken broadcast TV, but it's still sizable and cable is king. What's more the streaming segment is highly competitive. While Netflix is synonymous with streaming, it only controls about 23% of the market. Disney, Hulu, HBO Max and other streamers are steadily chipping away at the former's share. It's why Netflix has lost about four years of gains in the last four months.

Netflix has jacked up subscription prices, with increasing regularity, to keep being able to deliver massive amounts of (subpar?) content and attract new customers. But the strategy seems to be reaching its limits. So, to get its finances in better order, the company is going after password sharers, which it conspicuously allowed for a long time. It is also trying hard to crack down on scammers in illegal password-sharing marketplaces that offer its premium $19.99/month subscriptions for $1.00/month. Combined the company says password sharing costs it $7b-$8b of revenue per year. Furthermore, Netflix is said to also be considering, gulp, ads!

Regardless, the main metric investors are looking for is growth. Until Netflix can demonstrate consecutive quarters of solid growth, the stock will continue to suffer.