The company founded by Reed Hastings is going through one of its most difficult moments in recent years, accumulating a drop greater than 60%. Netflix shares reached $700 last November and have since plummeted, especially after reporting quarterly results. Yesterday, the company presented its accounts and its titles quickly began to fall 25% at the close of the market as investors discovered that the deterioration of the platform is worse than expected, customers are down and revenues are stagnant . At the time of writing this article, the titles are listed by below 260$ and everything indicates that the correction will continue in the next sessions.
Falling profits and plummeting customers
On a financial level, the company obtained a net profit of 1,597 million dollars in the first quarter of the year, which represents a fall of 6.4% compared to the previous year. At the subscriber level, the company lost 200,000 clients for the first time, but expects to lose 2 million in the next quarter. Russia also had a negative impact on the company with a total loss of 700,000 subscribers.
At this time, the company has 222 million subscribers, but there is more than 100 million of customers who are benefiting from shared access. Precisely, the company has been working for months on a plan that will completely limit that a family can share an account outside the same household. For this, they will geolocate the IP on the televisions and there will be restrictions. This measure can be a double-edged sword because it can cause massive casualties and users look for other alternatives, such as hire Netflix in another country where is cheaper. On pages such as forocoches, users tell about their experience contracting the service in Argentina and paying in pesos or in Turkey paying in Lire. It is only necessary to connect through a VPN, indicate a physical address in the country and of course pay with a credit card that does not have commissions in the currency exchange.
Netflix has several problems, on the one hand, competition from YouTube, Hulu-Disney, HBO, Amazon and many other online television platforms that have been coming out. The company told the analyst conference that it aims to grow operating income faster as it expands margins to generate growing positive free cash flow. This path clearly reflects that the company’s strategy involves raising prices to be more profitable.
The company raised prices by 10% and the drop in net users worldwide was 1%. The directors acknowledge thatrevenue is not increasing as expected» and therefore they study new measures and even the launch of a low-cost plan» that includes advertisements and allows reversing this negative trend in attracting customers. The fundamental problem with these types of measures is that they can stop the bleeding of subscribers, but at the same time they can erode margins considerably.
The only positive data is that despite the fact that the company has lost clients, they have achieved raise sales. A complicated future is looming for the company that will dawn today with 30,000 million less capitalization and that is also not standing out lately at the level of launches. It should also be borne in mind that in times of high inflation where the purchasing power of households is reduced, services such as Netflix are the first to appear on the list of non-essential expenses. It would not be ruled out that in the next quarter the wound will be even greater and we will see the company lose the 100,000 million market capitalization.
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Netflix is dying and its solution will be to raise prices, avoid shared accounts and put advertising