Netflix stocks fall – post-pandemic freedom and inflation sway subscribers

Netflix has reported the biggest decline in its stocks in over a decade. The streaming platform plummeted a significant 26% on Tuesday and is the third-worst performer this year in the Nasdaq 100 Index.

The platform’s share initially dropped when news broke that it had lost 200,000 subscribers globally during the first quarter of the year.

In a letter to investors, Netflix said: “Our revenue growth has slowed considerably. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally.

“However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”

The streaming platform has blamed increased competition, users sharing their accounts with non-subscribers, and the war in Ukraine as reasons for its fall. But is the reopening of economies and the rising cost of living the main cause for Netflix’s recent decline?

“The big COVID boost to streaming obscured the picture until recently. COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward,” the letter continued.

The pandemic and subsequent global lockdowns had a major part to play in the success of all streaming platforms, especially Netflix.

Netflix added 36 million new subscribers in 2020 and 18.2 million in 2021, a stark contrast to the 2.5 million additions in the first quarter of this year.

Being confined to our homes over lockdown meant that streaming platforms became a necessary part of life for much of the nation, and Netflix subscriptions grew significantly. But as we enter a ‘new normal’ and economies open up across the world, it is to be expected that this cohort of ‘lockdown subscribers’ will diminish.

What’s the future of Netflix?

Last month, Netflix announced its second price increase in the space of 18 months, raising the price of all of its packages in the UK and Ireland.

To the disappointment of many loyal subscribers, the company has also expressed the possibility of adding advertisements to the platform.

Netflix has roughly 14 million subscribers across the UK, but the recent price hikes coupled with the rising cost of living may contribute to a further decline in the company’s subscribers and stocks.

Competing platforms such as Amazon Prime, NOW TV, Apple TV+ and Disney+ are also offering prices at a discounted rate to Netflix – giving a tempting alternative to the pricey streaming platform.

Despite this, Netflix is still the most subscribed platform and all streaming services have experienced a decrease in subscriptions so far this year.

In a report by data analytics company Kantar, it was found that 1.5 million British households cancelled their subscription to streaming platforms in the first quarter of this year.

The report also shows that the number of UK homes that have at least one streaming service dropped by 215,000 in this first quarter, largely due to the 6% inflation increase and UK households becoming more aware of disposable income.

This indicates a wider trend of users unsubscribing to all streaming platforms, not just Netflix.

Adam Seagrave, UK Sales Trader at Saxo Markets, comments: “Following a boom through lockdown, the company missed its subscriber target in its last report in January and with users counting their pennies more than ever, their user growth may see another hit.

“This week a report from media consultancy firm Kantar found 1.5 million people in the UK have cancelled their streaming subscriptions in the first three months of the year with 38% more planning to cancel their services to save money going forward.

“The battle to prioritise spending continues for consumers as the cost of living grows with inflation hitting a 30-year high of 7% and oil/gas prices driving up energy and petrol bills.

“Streaming services are quickly falling down the pecking order and negative earnings from Netflix today could be an indicator that these entertainment stalwarts, such as Amazon Prime and Disney+, may struggle to prove their worth in the future.”