No restart signal from Netflix (-2.3% on the NASDAQ at the time of writing), after the nefarious collapse of the last few days. The decade of continued growth came to a halt in the first quarter of 2022. The company lost 200,000 subscribers, and to make matters worse, Netflix sources estimate it will lose another 2 million subscribers in the second quarter of the year due to growing competition. and inflation which puts pressure on families now ready to reduce spending on non-essential goods. In an analysis BG SAXO highlights problems and growth opportunities for the company in the coming months.
Netflix has been an unstoppable running locomotive for over a decade. The first quarter of 2022 marked the end of this race and the video streaming company is now struggling. Even if we take into account the loss of 700,000 users from Russia, it turned out to be a big misstep against its own prediction earlier this year of increasing users by 2.5 million. But it doesn’t stop there: a loss of two million subscribers is expected in the quarter that has just begun. These numbers scared the market so much that Netflix shares plummeted by more than 30% on April 20, showing a retracement of more than 65% from the all-time high reached in 2021.
What do these tell us numbers? Meanwhile, both analysts and Netflix itself have difficulty understanding the picture of post-pandemic demand and in particular the competitive landscape that is changing with a strong focus on e-sports and more generally gaming and video games, but certainly also the impact of rising inflation. Video streaming services are all the same price and offer a similar product, so this kind of competition isn’t Netflix’s problem. In short, this is not a replacement with other video streaming providers but a real cancellation due to inflation.
What could the factors that can put Netflix back on a growth path?
- Three new profiles. Netflix could adopt a three-profile pricing model: a free profile with the inclusion of commercials; a profile with less advertising for a small monthly payment, and finally the ad-free model with the most expensive subscription. This could expand distribution and drive more revenue from the global customer base.
- Restrict password sharing. Netflix has a major password sharing problem with some estimates suggesting a 3 to 1 factor of logins by non-paying users who have lent passwords to payers. Making this practice more difficult could lead to revenue growth.
- E-sports and gaming. With nearly a quarter of a billion paying customers, Netflix could do more to leverage its widespread distribution. The company previously said that a big threat to its existence comes from e-sports and gaming. If Netflix sees itself as an entertainment company rather than a video streaming service that makes movies and series, then it could be aggressively targeting e-sports streaming and even video games on the platform.
- Improve the quality of your productions. Although Netflix has not yet considered this issue, it is clear that the quality of its productions deteriorated last year and the company did not produce enough hits. This could be a dangerous trend and in order to get back up, it is essential to change course.