‘It was always going to disappoint’: Analysts react to Netflix’s slowed growth as shares tumble 20 per cent

Netflix shares take a beating as the streaming giant warned of “intensified” competition in the market as its pandemic glow begins to fade.

According to the company’s results last night, Netflix added 18.2 million members last year – roughly half the number who subscribed in 2020.

Whilst the number of subscribers grew to 222 million last year, the stock tumbled 20 per cent in pre-market trading today, down almost $100 from Thursday’s closing price.

The fall would wipe about $46bn (£34bn) from the group’s market value, and spells danger as the giant tries to battle it out in the streaming wars.

Netflix noted that “competition . . . has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering”, acknowledging that the increased rivalry “may be affecting our marginal growth”.

It asserted that it continued to grow in every country where its competitors had launched.

However, Raj Shah, Lead for Telecom, Media & Technology at digital transformation consultancy Publicis Sapient, said that the results “were always going to disappoint” because of Netflix’s steep growth during the lockdowns. 

As Shah highlighted: “Netflix spent half as much on content in 2021 as Disney, $17bn compared to $33bn. Netflix needs to favor quality over quantity. Just compare the handling of Marvel’s franchise where Disney opted for fewer, shorter, higher impact episodes than Netflix shows like Daredevil.” 

He commented that whilst the new head of global TV Bela Bajaria made smart moves like Squid Game and Money Heist by sourcing content locally and distributing through the Netflix global platform, the fact that Netflix upped its subscription for customers means that it needs to find a sustainable approach to retain subscribers.

Mike Proulx, Research Director at research firm Forrester echoed this point and said: “The reality is that the streaming market has become saturated. This translates to more choice for consumers who are growing concerned with the aggregate costs of their streaming subscriptions”

However, Shah said whilst there may be competition, he said that Netflix’s “more frugal approach” in contrast to the spendy shows like Lord of the Rings on Prime and the Game of Thrones prequel on HBO Max, means that its “long game” will win out. Netflix is “the tortoise to the hares”, he said.

Danni Hewson, financial analyst at AJ Bell, also weighed in on the discussion. She said: “In 2017 Netflix’s co-CEO Reed Hastings brushed aside talk that rival streaming providers would come and catch up with it, saying ‘we compete with sleep and we’re winning.’ Those words have come back to haunt him.”

“The streaming market is now very competitive and in some markets like North America growth is becoming much harder to achieve because so many people are already signed up to Netflix and a host of other platforms.

“A lot of new subscribers are now coming from outside the US and Canada, with Asia Pacific a key region for growth – however, the average revenue per member for Netflix in these places is a lot less than North America.

“It looks Netflix might have to load up a new spreadsheet and start redoing its maths to see what the long-term earnings model might look like if growth expectations are significantly pared back.”