A number of global streaming company stocks have all taken a dip today after Netflix (NFLX) reported losing 200,000 net streaming customers. This was after forecasts of a gain of 2.5 million to 4 million for Q1. NFLX stock is now down 36% midday on April 20, after falling over 26% after hours yesterday when the company released its earnings.
For example, Warner Bros Discovery (WBD), which was recently formed last week when the WarnerMedia division of AT&T (T) merged with Discovery, Inc., is now down over 5.6%. In addition, fuboTV (FUBO), another SVOD (subscription video on demand) company, is down by over 5.7%, and Paramount Global (PARA) is off by over 6.9% for the day.
Other companies with SVOD divisions have also been hit. The Walt Disney Company (DIS), which has a streaming division with its new Disney+ produce, is now down 6.2%, and even Amazon (AMZN), with its Prime media division, is off 2.45%.
Issues with SVOD Services
The point is that investors and analysts are concerned that the malaise in streaming viewing could actually affect other SVOD companies or divisions. Many of the companies are facing similar headwinds, especially from the lifting of pandemic restrictions that kept people indoors. The SVOD companies benefited from coronavirus stay-at-home orders, which led many to subscribe to streaming services to pass the time.
In addition, the proliferation of streaming choices allows people to move into and out of subscriptions at will each month, depending on whether a particular series they want to watch is playing on a channel.
Another similar factor is the higher inflation and slowing economy, which could be forcing many people to cut back on streaming services. Last month the inflation rate hit 8.5%, the highest it has been in 40 years. This belt-tightening effect could continue to impact discretionary spending choices for consumers, including more than just at Netflix. That is probably another concern behind the fall in other SVOD stocks, as investors project out earnings going forward.
What Netflix Can Do
Netflix shared in its shareholder letter that it estimates that over 100 million people are sharing their passwords, allowing many families and friends to use the same service without paying. This is a similar problem that many other SVOD services also share, but have not yet addressed. It is considering a crackdown on password sharing and is also considering adding an ad-supported version of its service to increase revenue.
Nevertheless, there are indications the market may be overreacting. Despite the decline of 200K from lower member subscriptions, Netflix would have had higher net adds, not including the effect of Russia. By excluding its suspension of service in Russian, Netflix would have posted 0.5 million net adds as well as positive free cash flow.
However, Netflix now forecasts lower levels of streaming customers going forward. It is experiencing “continued soft acquisition across all regions.” For Q2 it now forecasts a net loss of 2 million paid memberships, vs. gaining 1.5 million a year ago.
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