The service was riding high in 2020 but COVID, competition from other providers, and a drop in subscribers in North America create a mixed picture
Concerns are growing at Netflix HQ as their stock price plunges amid subscriber growth worries.
Netflix delivered its latest quarter of disappointing subscriber growth during the final three months of last year, a trend that management foresees continuing into the new year as tougher competition is undercutting the video streaming leader.
The California-based company added 8.3 million worldwide subscribers from October to December of 2021, about 200,000 fewer than had been forecast.Predictions for this first quarter of 2022 are also disappointing at an increase of 2.5 million subscribers, well below analysts' expectations for a gain of 4 million, according to FactSet Research.
In response to the news Netflix's stock price plunged by roughly 20% in extended trading, deepening a steep decline during the past two months.
It capped a challenging year for Netflix after it revealed in eye-popping gains during the pandemic lockdowns of 2020 that drove homebound people to its service.
The streaming service picked up 18.2 million worldwide subscribers during 2021, its slowest pace of annual growth in five years. It came after Netflix gained more than 36 million subscribers during 2020. The service now boasts nearly 222 million worldwide subscribers worldwide, more than other video streaming leaders.
But other services backed by deep-pocketed rivals such as Walt Disney Co. and Apple have been making inroads in recent years, and a bevy of other networks are also wading into video streaming hoping for a slice of the pie. The escalating competition is one reason Netflix decided to expand into video games last year.
"The 2022 backdrop for Netflix seems to have been set with a theme of competition abound," said Third Bridge analyst Joe McCormack.
COVID creates "bumpy" road for streaming service
While acknowledging the competition is having a "marginal" effect on its growth in its quarterly shareholder letter, Netflix emphasised its service is still thriving in every country where it's available.
In a Thursday conference call, Netflix executives also said uncertainty caused by the ebb and flow of the pandemic during the past year has made it more difficult to gauge future growth. With co-CEO Ted Hastings saying that COVID "has created a lot of bumpiness”.
Despite the choppiness, the company is faring well financially, even though its profit margins are being squeezed and cash is being drained by spending on more original programming to attract subscribers. Netflix earned $607 million, or $1.33 per share, in the fourth quarter, a 12% increase from the same time in the prior year. Fourth-quarter revenue rose by 16% to $7.7 billion.
Investors, though, are getting more worried that Netflix may be nearing its peak in popularity. Those concerns have caused Netflix's stock price to plummet by more than 40% from its peak of roughly $700 reached in mid-November.
The opportunities for future growth have become particularly tough in Netflix's biggest market -- the U.S. and Canada -- where it's starting to appear that most households interested in subscribing to the service already have an account. Netflix ended 2021 with 75.2 million subscribers in the U.S. and Canada, translating into a paltry one-year gain of 1.3 million subscribers in that region.