Netflix stock plunges as herky-jerky member growth is set to screech slower

Big titles like Bridgerton's second season will hit Netflix early this year, but its prediction for limp subscriber growth in the first months of 2022 has its stock tanking.

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Joan E. Solsman
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Netflix's saw its market value plunge Friday, a day after the company predicted it will add far fewer subscribers than expected in the first months of 2022, the latest bumps in the road for the world's biggest subscription streaming service. 

Netflix stock plummeted on the news, as investors appeared to second-guess their optimism in subscription streaming as a business model. In recent trading, shared plunged $382.01, down 25%. 

In its earnings report Thursday, Netflix said subscribers grew by 8.28 million to 221.84 million total in the fourth quarter. That fell short of Netflix's October guidance that it would add 8.5 million new members. Analysts were expecting subscriber growth to be shy of Netflix's forecast, with the average of estimates at 8.39 million new members, according to Refinitiv. The actual number comes in just below even that. 

But crucially, Netflix's guidance for the first quarter was way short of analysts' expectations. Netflix predicted it'll add just 2.5 million new members in the first three months of the year, compared with the 5.9 million analysts were expecting. 

"It's definitely frustrating for us, the current slower growth," Reed Hastings, Netflix's co-CEO, said Thursday during a discussion of the results. "It could well be just COVID effects. ... It's possible that we'll get there but slower than we thought."

But overall, executives were unswerving in their belief in Netflix and its business long term. 

"We took a big bet years ago on this, that people would move on to Netflix and Netflix-type offerings to consume movies and film," Ted Sarandos, the company's co-CEO alongside Hastings and its content chief, said during Thursday's remarks. "We have no change in our confidence in that."

The company said its outlook for the first quarter was tame because big programming was scheduled to land in the latter weeks of the quarter compared with the year before. Bridgerton's second season, for example, will be released in March, after its first season surged in popularity over a longer stretch of the same period a year earlier. 

After Netflix enjoyed surges in popularity in the initial stages of pandemic lockdown in 2020 from people stuck at home and desperate for entertainment, its growth had slowed dramatically in 2021, and the company even lost members in the US and Canada -- its biggest single market -- during the early summer for the first time since 2019.

Netflix has also faced a wave of competition from new rivals like Disney Plus and HBO Max, as media and tech giants have launched their own services to take on Netflix as television transitions to a future of streaming. Netflix's rare subscriber loss in the US and Canada hinted that the new competition, which is centered in the US, may be pressuring Netflix's membership growth there. 

But by the second half of last year, Netflix appeared to bounce back, riding a wave of interest swelling from the popularity of Squid Game, the most popular show in its history. And the last quarter of the year is traditionally boom times for Netflix, when people cozy up for extra streaming during a surfeit of holidays in many of Netflix's markets. Netflix released its two most popular films yet during the period, the star-packed movies Red Notice and Don't Look Up. On the TV side, the popularity of Squid Game was still soaring as the fourth quarter began, and the service released seasons of five different shows that ended up in Netflix's all-time top-10 ranking for most watched programming: No. 3 Money Heist, No. 7 The Witcher, No. 9 Maid and No. 10 You

Netflix even underscored its confidence in its growth by announcing last week that it would raise prices for all its plans in the US by at least $1 a month -- and in the case of its premium option, by $2. It's the quickest Netflix has ever hiked prices after a previous bump, and it makes Netflix's most popular plan, the standard plan at $15.50 a month now, the most expensive service of its kind among competitors. 

In the US and Canada, Netflix added 1.19 million streaming customers, for a total of 75.22 million. In Europe, Middle East and Africa, members increased 3.54 million to 74.04 million. In Latin America, subscribers grew 973,000 to 39.96 million. And in the Asia Pacific region, membership increased by 2.58 million to 32.63 million.

Overall in the fourth quarter, Netflix reported a profit of $607.4 million, or $1.33 a share, compared with $542.2 million, or $1.19 a share, a year earlier. Revenue rose 16% to $7.709 billion.

Analysts on average expected per-share profit of 82 cents -- two pennies more than Netflix's own guidance -- and $7.708 billion in revenue.

Correction, Jan. 21: An earlier version of this story included incorrect market capitalization figures. 

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