The numbers were dismal, to say the least, considering the company had told investors to expect 2.5 million new subscribers in the quarter, and analysts were expecting more than 2.7 million.

Even worse, Netflix is now projecting it will lose an additional 2 million subscribers by next quarter.

In a lengthy letter to shareholders, the company said its boom during COVID-19 had “obscured the picture recently” and that four key factors—increasing competition, slowing smart TV adoption, password sharing, and macroeconomic developments—have made it “harder to grow membership in many markets.”

Management estimates that over 100 million households are using its services without paying due to the sharing of passwords, and said it plans to build a password-sharing subscription model to properly monetize these users.

The streaming giant also warned that revenue growth has “slowed considerably” as some pressing growth issues have emerged.

In a full-page discussion of its subscriber retention issues, Netflix addressed the various reasons it should continue to bleed subscribers and said, “Our plan is to reaccelerate our viewing and revenue growth by continuing to improve all aspects of Netflix—in particular, the quality of our programming and recommendations, which is what our members value most.” 

The company added that it lost around 700,000 subscribers as a result of its exit from Russia, but even excluding those losses, it would have managed to add just 500,000 subscribers in the first quarter. “Sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID” were the macro factors Netflix flagged as things simply out of its control.

Despite the unsettling figures, Netflix still boasts a paid global subscriber base of 221.6 million, and revenue rose roughly 10% to $7.87 billion in the first quarter. However, the company managed a quarterly profit of only $1.6 billion, down from $1.71 billion in the same period a year ago.

The news from Netflix doesn’t exactly have shareholders celebrating. And a few top hedge fund managers are also undoubtedly unpleased. 

Bill Ackman bought 3.1 million shares of Netflix in January, arguing that the company was undervalued based on a long-term outlook. His holdings were once worth over $1.1 billion, but with shares trading around $260 after today’s drop, his stake is now valued at roughly $800 million.

Netflix isn’t the only streaming service facing growth issues, either. Disney is adding a lower-priced version of its streaming platform that will be supported by advertising later this year in an attempt to boost subscriber growth.

And after Tuesday’s report, Netflix may be forced to go down the same path. The company is facing growing pressure to add an advertising-based version of its content from investors. Will Netflix get disrupted into bringing TV commercials back into consumers’ living rooms?