Netflix warning on subscriber growth sends shares plummeting

Netflix warned it would add far fewer subscribers than expected in the first three months of this year, sending its shares down by almost 20 per cent in after-hours trading.

The streaming company projected it would add just 2.5m subscribers in the first quarter, well below analyst expectations of 4m.

It also undershot expectations for net new subscribers in the last quarter of 2021, adding 8.3m versus expectations ranging from 8.4m to 8.7m. That brought the total number of paying customers to 222m.

Netflix noted that “competition . . . has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering”.

The company acknowledged that competition “may be affecting our marginal growth”, but added that it continues to grow in every country in which its competitors have launched.

“Netflix has tremendous room for growth if we can continue to improve our service,” it added.

Netflix shares sank by 19.6 per cent in after-hours trading.

The slowdown in subscriber growth comes despite one of the strongest catalogues of original content since it launched, with the Squid Game craze continuing its run and the release of the film Don’t Look Up, which stars Leonardo DiCaprio and Jennifer Lawrence.

But competition from rival streaming services including Disney+, HBO Max, Peacock and Paramount+ is starting to bite, analysts say.

The “streaming wars” are leading all of the major services to spend more on content, including Netflix. The company said its large list of films and TV shows in the fourth quarter compressed operating margins to 8 per cent — down 6 percentage points compared with a year earlier, though Netflix did not spend as much on content as it had forecast.

Netflix forecast that its operating margin would remain under pressure in 2022, declining to 19-20 per cent for the full year from the 21 per cent it achieved in 2021.

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