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Shares of Netflix lost more than 35% of their value in New York on Wednesday, after the streaming giant announced it had lost more than 200,000 subscribers in the first three months of the year and said it and expects to lose 2 million more over the next quarter.
The sharp drop wiped $50bn off Netflix’s value and comes as subscribers rethink their commitment to streaming services that grew their numbers sharply during the homebound months of peak lockdown. Netflix had anticipated it would add 2.5 million customers in the first quarter.
Why is Netflix losing so many subscribers and what can it do about it?
A number of rival services, including Disney, Warner Bros Discovery and Paramount, often with deeper content libraries to draw on, have also entered the market. Netflix stock, which was already down 40% for the year, has now dropped from $700 in November to $244 when the market opened, a fall approaching two-thirds. The company said on Tuesday that it had experienced “revenue growth headwinds”.
It recently raised subscription prices despite signs that consumer growth was slowing, with a basic monthly package now costing US customers $15.49.
In terms of capitalization, Netflix is now worth $1009bn, a figure that will make it more difficult for its Los Gatos, California-based management to raise money to fund the investment for content production upon which subscriber growth has been dependent.
The confluence of negative forces, from the lifting of the pandemic, the loss of 700,000 subscribers in Russia, high consumer inflation in many leading markets forcing households to rethink their budgets, have hit the service. Elon Musk, the Tesla CEO currently making a hostile takeover bid for Twitter, claimed “woke mind virus” is behind Netflix’s stock plunge – not competition, password crackdowns or an inflation squeeze. “The woke mind virus is making Netflix unwatchable,” Musk tweeted. Wednesday’s crash comes after a period of spectacular growth for the company coupled with investors demand for the stock. Netflix, like Peloton and GameStop, was a beneficiary of cash that flushed through economies during the pandemic, feeding demand for stocks.
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