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Netflix Shares Fall 20% on Slowing Subscriber Growth

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  • Netflix reported fourth-quarter earnings after the bell on Thursday.
  • The streamer beat on profit and was in line with expectations on revenue, but shares plunged in after-hours trading on slowing subscriber growth.
  • The company said for the first quarter of 2022, it expects to add 2.5 million subscribers, compared to the 3.98 million it added in Q1 2021.

Netflix reported fourth-quarter earnings after the bell on Thursday. The streamer beat on profit and was in line with expectations on revenue, but shares plunged more than 20% in after-hours trading, to the lowest levels since June 2020, on slowing subscriber growth.

Here are the key numbers:

  • Earnings per share (EPS): $1.33 vs 82 cents expected in a Refinitiv survey of analysts.
  • Revenue: $7.71 billion vs $7.71 billion expected, according to Refinitiv.
  • Global paid net subscriber additions: 8.28 million vs 8.19 million expected, according to StreetAccount estimates

Netflix added 8.28 million global paid net subscribers in the fourth quarter. Analysts had expected the company to add 8.19 million, according to StreetAccount estimates. But that's fewer than the 8.5 million subscribers Netflix added in Q4 2020, the same figured it had forecast for Q4 2021, and its outlook was worse.

Netflix said it expects to add 2.5 million subscribers during the first quarter of 2022, far below the 3.98 million it added in Q1 2021. Meanwhile, analysts had expected 6.93 million in the first quarter, according to StreetAccount estimates.

Netflix said it plans for a more back-end weighted content slate in the first quarter, with big premieres set for March.

But that's similar to the image Netflix had painted heading into Q4. Netflix and analysts had anticipated a large jump in consumers at the end of 2021 when the company released new TV shows and movies that had been pushed to the back half of the year. During the quarter, for example, Netflix released high-performing content such as "Emily in Paris," "Don't Look Up," "Red Notice" and "You."

Netflix said increased competition from other companies was one reason for the slowdown, though in the past it had said companies like Apple and Disney wouldn't materially affect growth.

"Consumers have always had many choices when it comes to their entertainment time - competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering," Netflix said. "While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched."

Disney and Roku shares also dipped more than 4% in after-hours trading.

Netflix, wanting to attract the 800 million to 900 million households that use either broadband internet or pay-TV, said it's still early days when it comes to reaching that number.

"It's definitely frustrating for us, the current slower growth," co-CEO Reed Hastings said during a pre-taped earnings interview. The company reported 222 million paid memberships in the fourth quarter.

"It's a dynamic market for sure, it may not be as steady as people think about it in terms of we're gonna add X number every quarter, every month, every week, but there's no question that's the direction the business is going in," co-CEO Ted Sarandos added.

Netflix announced price increases in the U.S. and Canada last week. In the United States, the monthly cost for the basic plan rose $1 to $9.99. The standard plan jumped from $13.99 to $15.49 and the premium plan rose from $17.99 to $19.99.

Netflix's strategy is to increase prices as customers become even more entrenched in the company's exclusive content. Price increases can help offset waning customer growth.

Netflix also updated investors on its push into gaming. The company has been releasing games based on its popular titles to its subscribers. The new games may help it gain insight into which characters are most popular, which could eventually help shape its content.

"We're now really getting to learn from all of those games," COO Greg Peters said.

Correction: Netflix beat on profit and was in line with expectations on revenue. An earlier version misstated the results.

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