Even as Netflix executives sought to reassure investors in a Thursday video interview that its long-term prospects for streaming media remain bright, with its popular series Bridgerton returning for a second season and a science-fiction film starring Ryan Reynolds coming soon, shares slipped.
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.”
Of 221.8 million subscribers reached at the end of 2021, 39.6 million are in Latin America. Despite generating less revenue per member than other regions, Latin America was the market in which Netflix grew the most in the last quarter: 14%. The region’s figures also show that Netflix is recovering in Latin America, after a slump in late 2020.
Pivotal Research Group analyst Jeff Wlodarczak said Netflix and other services that added subscribers during the pandemic lockdown in early 2020 – including Disney Plus – are struggling to regain equilibrium after outsized gains.
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.
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.”
“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% 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, an analyst at Third Bridge, “as we head into a 2022 year that many seem to believe will come with streaming video subscriber saturation overall.”
“For now, we’re just like staying calm,” he said.