Netflix shares plummeted late Tuesday and into Wednesday as the streaming entertainment giant warned of weaker-than-expected subscriber growth in the months ahead. The slowdown comes as Netflix faces the end of coronavirus lockdowns, which had previously boosted the company’s subscriber base as people trapped at home sought online entertainment.
On Tuesday, Netflix announced first quarter results that fell short of Wall Street’s expectations, with 3.98 million new customers for the period, significantly below the projected 6 million. “We believe paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays,” the company said in a letter to investors.
Adding to the bleak outlook, the streamer said it anticipates a mere 1 million new streaming customers in the second quarter, a 90 percent drop from the year-ago period.
The stock took a battering in the wake of the bad news, tumbling as much as 11 percent in after-hours trading Tuesday. Shares continued to slide on Wednesday, closing the day down nearly 7.5 percent.
Wall Street analysts have traditionally pegged Netflix’s financial health to its subscriber growth, since subscriptions are the company’s main source of revenue.
Exactly a year ago, at the height of forced stay-at-home orders, the company reported blockbuster subscriber growth, with 15.8 million new subscribers for the fist quarter, more than double its guidance for the period.
Now with cinemas and restaurants gradually re-opening around the country, consumers are expected to spend more time outside the home, which means less time in front of their screens.
Netflix attempted to allay investors worries saying it expects a strong second half of 2021 due to the return of new seasons of “some of our biggest hits and an exciting film lineup.” The streamer announced on Wednesday a new third season of Master of None, its acclaimed comedy series from comedian Aziz Ansari, which will debut in May.
“In the long-term, the rise of streaming to replace linear TV around the world is the clear trend in entertainment,” the company said.
Netflix is facing more streaming competition, with Disney+ already reaching 100 million subscribers. The launches of Paramount+ and Peacock are also creating more competition for subscriber dollars.
Former president Barack Obama and first lady Michelle Obama continue to partner with Netflix on documentaries and scripted content as part of a production deal signed in 2018. The Netflix documentary Crip Camp, which was produced through the Obamas’ Higher Ground production company, is up for an Oscar on Sunday in the documentary feature category.
Netflix titles scored a total of 35 Oscar nominations this year, more than any other studio.