Why are shares of Netflix plunging?
Shares of Netflix plunged 35% after news of a plummeting subscriber count and a warning that millions more would leave the streaming service.
This wiped out more than $50 billion in market value for the company as experts warned it was having trouble getting back on track.
Netflix faces stiff competition from competitors in the streaming space but has also suffered after raising prices and leaving Russia.
However, some have questioned his plans to accelerate growth, including introducing a free, ad-supported service. It also plans to crack down on password sharing, with over 100 million non-paying households looking at the service this way.
On Wednesday, one of the most prominent U.S. investors, William Ekman, pulled out of his $1.1 billion investment in Netflix, losing more than $400 million in a troubling loss. His hedge fund, Pershing Square Capital Management, bought the stock three months ago. Ackman said in a brief statement that while Netflix’s plans to change its business model make sense, investing in the company is too risky.
Why are subscribers quitting Netflix?
“While the Netflix business is fundamentally easy to understand, given recent events, we have lost the ability to predict the company’s future prospects with reasonable certainty,” he wrote.
In a commercial update on Tuesday, Netflix reported that the total number of subscribers dropped by 200,000 in the first three months of 2022, well below planned. He also said that another two million are likely to leave the service three months before July.
After a period of rapid expansion during the pandemic, some analysts have warned that the streaming giant has run out of easy ways to grow. Heartbroken consumers are cutting back on streaming services to save money, while some feel there is too much content to choose from amid stiff competition from rivals like Disney and Amazon.
“Like the rest of the industry, Netflix’s biggest problem is that consumers don’t have unlimited money, and one or two subscriptions are usually enough,” said CMC Markets analyst Michael Hewson. “Once restrictions are introduced, it has to give way to a cost-of-living crisis. While Netflix remains the market leader, it doesn’t have the deep pockets of Apple, Amazon or Disney, making it more vulnerable to profit compression.” But Julian Akilina, senior TV analyst at media research firm Enders Analysis, said that the company’s shutdown was wrong.
“The streaming market is maturing, and high expectations for Netflix have returned. If people cancel their subscriptions, Netflix won’t be the first one they choose.” ”
He added that the company had just raised its prices, “which always results in a reduction in the number of subscribers, but also means that it makes more revenue per customer.” Netflix remains the world’s leading streaming service with over 220 million subscribers. It produces more and more of its own content, and shows like Crown, Bridgerton and Squid Game have become worldwide hits.
The company, which has posted quarterly user growth since October 2011, acknowledged that it was losing customers to rivals as it struggled to scale due to password sharing. He also said that raising prices in critical markets cost him 600,000 subscribers in North America alone and 700,000 from Russia to Ukraine. Despite the difficulties, the revenue increased by $7.8 billion (6 billion dogs). The first three months of this year increased by 9.8% year-on-year. That marked a slowdown from previous quarters, as profits fell more than 6% to around $1.6 billion. Netflix shares fell 35% on Wednesday and another 3.5% on Thursday.