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Netflix shares plummet as subs slow

April 21, 2021

Netflix has reported a significant slowdown in subscriber growth, plummeting its shares, as its pandemic boom came an abrupt end.

Some 3.98 million people signed up for Netflix in Q1 2021, well short of the projected 6 million. In response to the news, Netflix shares fell 11 per cent in after-hours trading to $489.28, wiping $25 billion off the company’s market capitalisation.

In Q1 2020, the company added a record 15.8 million new subscribers as the pandemic took hold. Netflix is forecasting subscriber growth of just 1 million for the current quarter. The latest growth took its total subscriber base to 208 million.

The company said a lack of new shows may have contributed to the shortfall, adding that it expected this to recover as new seasons of popular shows are released, such as Sex Education, Money Heist, The Witcher and Stranger Things.

“The extraordinary events of Covid-19 led to unprecedented membership growth in 2020, as it pulled forward growth from 2021, and delayed production across every region,” the company wrote in a letter to shareholders. “As we discussed in past letters, these dynamics are also contributing to a lighter content slate in the first half of 2021, and hence, we believe slower membership growth.”

Netflix is also facing stiffer competition from services  such as Disney+, Peacock and HBO Max. But the company dismissed competition for its subscriber miss: “We don’t believe competitive intensity materially changed in the quarter or was a material factor in the variance as the over-forecast was across all of our regions,” it said.

According to Maria Rua Aguete, Senior Director, Media and Entertainment at analyst firm OMDIA, the reason for this stark contrast with the year before is that SVoD, more than many other types of entertainment, must maintain a healthy pipeline of potential new subscribers and carefully manage the high level of churn that is incumbent to monthly subscription products.

“2020 has seen this pipeline exhausted; new subscribers have been converted at astonishing rates and the pool of subscribers in potential have been vastly reduced. Not only does this impact growth, but also strategy. To grow now, especially when faced with new competition, services such as Amazon and Netflix must refill the pot and gain access to new sources of subscriptions. In essence, this means being more open to integrated deals with consumer gatekeepers, such as pay-TV providers and telcos. These deals will include further integrated libraries and even the bundling of SVoD services,” she adds.

Paolo Pescatore, TMT analyst at PP Foresight, described the slowdown in subscriber adds as a “huge miss”which was far worse than expected. “This, coupled with further low net adds for the subsequent quarter, suggests that the pandemic streaming party has firmly come to an end,” he notes.

“As important as subs is net income. Netflix is at a different phase of growth compared to other streamers. The year ahead will be pivotal in being more self-sufficient than dependant on other financial sources. It will be many years before many other streaming services turn a profit. All are placing huge bets and will be loss leaders for years,” he predicts.

In terms of content, he notes that Netflix has a strong line-up of new shows in the pipeline. “Investment in content is showing no signs of easing up which will be paramount. This is encouraging for retaining subscribers and attracting new users to sign up. However, it will need to have a stronger second half of the year. Exclusivity is key in this race for supremacy in a post-pandemic streaming watch party,” he concludes.





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