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By the end of the 45-minute earnings interview,
Netflix stock was down more than 20%, casting a pall over the
entertainment industry. Wall Street analysts and the company's
own executives struggled to explain why the world’s dominant
streaming service forecast modest growth for the first three
months of 2022, when many had anticipated a return to
predictable, pre-pandemic quarterly gains.
"It's tough to say exactly why our acquisition hasn't kind of
recovered to pre-Covid levels," said Netflix CFO Spencer
Neumann. "It's probably a bit of just overall Covid overhang
that's still happening after two years of a global pandemic that
we're still unfortunately not fully out of, some macroeconomic
strain in some parts of the world, like Latin America, in
particular."
Stocks of tech and media companies that have invested heavily on
streaming, including the Walt Disney Co, ViacomCBS and Roku, all
dropped in after-hours trading.
Netflix projected gains of 2.5 million subscribers in the
January through March quarter, roughly two-thirds of the 4
million customers added in the same period a year earlier. Wall
Street analysts pointed to heightened competition and a
slower-than-anticipated return to normalcy after the distortions
of the pandemic as possible factors.
Pivotal Research Group analyst Jeff Wlodarczak said Netflix and
other services that added subscribers during the pandemic
lockdown in early 2020 - including Disney+ and Peloton - are
struggling to regain equilibrium after outsized gains.
“Streaming is not over, it is the future,” Wlodarczak wrote.
“And today, streaming still has a relatively small percentage of
global television viewership.”
Others saw Netflix’s muted first-quarter forecast as a sign of
intensifying competition - though co-CEO Ted Sarandos told
investors: "We didn't see a hit to our engagement. We didn't see
a hit to retention - all of those things that would classically
lead you to looking at competition."
Rival services, such as Disney's Disney+, WarnerMedia's HBO Max
and Amazon Prime Video, are spending billions on content to
attract subscribers.
“The reality is that the streaming market has become saturated,”
wrote Mike Proulx, vice president of research for Forrester.
“This translates to more choice for consumers, who are growing
concerned with the aggregate costs of their streaming
subscriptions.”
Though 90 percent of Netflix’s growth is expected to come from
outside its home market, analysts are closely tracking how
Netflix’s latest price increase, which boosted the cost of a
monthly subscription to $15, will affect subscriptions in the
United States and Canada.
"Whether Netflix can retain subscribers at historical rates now
that their most popular tier costs the same as HBO Max after
their most recent price increase will be important to gauge,”
wrote Joe McCormack, Analyst at Third Bridge, “As we head into a
2022 year that many seem to believe will come with streaming
video subscriber saturation overall."
Netflix co-Founder Reed Hastings told investors there's ample
room for growth, as streaming gradually replaces traditional
television over the next decade or two.
"For now, we're just like staying calm," he said.
(Reporting by Dawn Chmielewski and Tiyashi Datta; editing by
Peter Henderson and Gerry Doyle)
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