Netflix Q1 - Drop In Subscribers

Last night Netflix reported very disappointing numbers. The share price of the company is based on the expectation of continued subscriber and profit growth and guidance was for the addition of between 2.5 million to 4 million new paying accounts. Instead they reported a drop in accounts of 200 000, including the deactivation of 700 000 accounts in Russia. Even taking those into account, this was a big miss.

Three of their four geographic regions showed a diminution in subscriber numbers; only the Asia-Pacific region grew.

The company noted that their recent price hikes were not well-received, given current inflation pressures. Overall revenues still increased, because the price hikes were larger than the percentage drop in subscribers. That might be fine for a legacy industry like cigarettes, but for Netflix, the market wants growth.

Netflix has over 220 million household subscribers, but estimates that another 100 million households are freeloading with a "borrowed" password. So they know and love Netflix content, they just don't pay for it. Even getting some of these households to sign up properly will make a significant difference for Netflix.

We have held this stock through many surges and falls, and will bide our time. Streaming services still have massive upside, and it remains to be seen how profitable the industry will be.