(CNN Business) — As in his comedy “Don’t Look Up“, the sky may be falling on Netflix.
Netflix shares have plunged 41% from the all-time high they hit just two months ago. It’s gaining subscribers at a painfully slow rate. The competition is increasing.
The company’s response to all this: raise prices to its customers in the North American market.
After sitting atop the mountain of streaming platforms, Netflix is struggling to climb higher as its rivals gain more ground.
“It looks like they’re coming of age,” Michael Nathanson, a media analyst at MoffettNathanson, told CNN Business. “They keep raising their prices, and now to maintain the level of subscribers they have, they’re continually adding more and more new content, and content is inherently a difficult business to predict with ups and downs.”
“Don’t Look Up”
It wasn’t that long ago that Netflix was a stock darling, but those days seem to be behind us. Shares of the company peaked at nearly $700 in November, but have since fallen to around $400 on Friday.
Netflix ended 2021 with 221.8 million subscribers. That’s significantly more than others in the streaming market, including Disney, one of its closest competitors. Disney had 118.1 million subscribers in October, and increased subscriptions by 60% between October 2020 and October 2021. During that same period, Netflix grew just 9%.
Disney it has not yet released its financial results for the final three months of 2021. But Netflix’s growth slowed further in the fourth quarter, to just 8%. (And the disney growth in the last trimester also scared wall street).
Netflix is struggling to find more subscribers within the markets it has been in the longest, especially the United States, Nathanson said. The company will have to “start aggressively pursuing growth in developing markets” such as India and other Asia-Pacific countries to move forward, he added.
The problem with relying solely on subscriptions for revenue is that, after a while, people who haven’t signed up run out. That’s bad news for Wall Street investors, who care mostly about companies’ ability to grow.
Zak Shaikh, vice president of programming at investigative media firm Magid, believes Netflix’s decline is more “a Wall Street thing” than “something that reflects that the business is in trouble.”
“They continue to add subscribers, and continue to have the same high usage and viewing metrics,” he added. However, even Shaikh noted that in the long run, “Netflix will have to deal with the fact that you can’t keep adding subscribers.”
One of the ways the company has tried to offset its growth slowdown is by investing in other verticals, such as games. Another way is to raise prices, but that could prove difficult as competition increases.
Netflix red alert
While the price increase will likely help offset the low number of new subscribers, it could also spell further stagnation for Netflix.
For some consumers, even small price increases are too much to ask considering there are so many competitors on Netflix’s doorstep. Rivals like Disney+, Peacock and HBO Max, from CNN parent company WarnerMedia, are also vying for a share of consumers’ streaming budget. A dollar here or there is important to consumers’ wallets.
Netflix admitted as much on Thursday, saying the competition is “affecting our marginal growth a little bit.”
In Thursday’s post-earnings call, Reed Hastings, co-CEO of Netflix, also explained that there were many reasons for the company’s tepid financial outlook, including “continued excess of covid-19” and economic difficulties. .
But he also conveyed his confidence in the future of streaming, as well as the sheer size of Netflix’s market and its stable performance.
“For now, we remain calm,” he said.
But will Hastings still be quiet at the end of 2022? Will investors be?
“The intensity of the competition will increase in 2022,” Nathanson noted. “You’ve got the sports streaming launch. Lord of the Rings is coming to Amazon. We’ve got the Discovery and HBO Max merger, so there’s going to be more content. And there’s a whole slate of Disney content coming.”
Added Nathanson: “I think 2022 is going to be a year of concern about growth and competition for Netflix.”