Netflix got off to a slow start to the year, missing Wall Street estimates after adding only 1.75 million customers in the first quarter and stoking concerns about the future of the world’s most popular TV network. Investors were expecting 2.41 million new customers.
Netflix also predicted on Tuesday that it will generate lower sales and profit in the current quarter than what analysts forecast. The company delayed its plan to crack down on password sharing in the US. It sees new customers in the current period as “roughly similar” to the first quarter.
Shares of Netflix fell as much as 12% to $294.80 in extended trading after the results were announced.
This is the second year in a row where Netflix has gotten off to a shaky start. Shares of Netflix have slipped more than 50% from their high in November 2021 as the company has gone from a high-flying phenom to a middle-aged star searching for its next big hit. The streaming service lost customers in the first half of 2022 and added fewer than 9 million customers for the full 12 months, its slowest pace since 2011, the year it split its streaming service from its DVD-by-mail business.
Netflix said Tuesday it is shutting down its DVD delivery operation, ending its original business after a 25-year run. The company cited the cost of operating it after years of seeking customers move online.
The streaming industry pioneer has responded to its slowing growth by introducing two new initiatives: an advertising-supported tier and a plan to crack down on password sharing. The company estimates that more than 100 million people use a Netflix account for which they don’t pay.
The company has been testing ways of charging customers for sharing accounts in Latin America, and rolled out plans in four territories in the first quarter. It said it would begin to charge for password sharing in the US, its largest market, in the next couple months. Analysts see this as a large potential source of new customers.
“Widespread account sharing undermines our ability to invest in and improve Netflix for our paying members, as well as build our business,” the company said in a statement to investors. “We’re pleased with the results of our Q1 launches in Canada, New Zealand, Spain and Portugal, strengthening our confidence that we have the right approach.”
The advertising tier debuted in November but has yet to contribute a material number of subscribers. The company had said that both advertising and password sharing will offer modest contributions in the first quarter of the year but would pick up in the current period.
Cracking down on password sharing will also cause some customers to stop using the service in the short term. Netflix’s challenge is to get them to pay for their own account, which would accelerate growth in markets like the US and Latin America.
Foreign territories accounted for almost all of Netflix’s growth in the quarter. The service added just 100,000 customers in the US and Canada after losing almost 1 million customers last year. The Asia-Pacific region continues to be Netflix’s bigger source of new customers. The service added 1.46 million customers there in the quarter, thanks in part to lowering prices in India. It lost subscribers in Latin America, a development that could be the result of the crackdown on password sharing.
Netflix is still the most popular TV network in the US by a good margin. It accounts for more than 7% of all TV viewing in the US each month, according to Nielsen, more than double any paid service. It also tops linear networks, according to CBS. Netflix released several new hits in the quarter, including new seasons of Ginny & Georgia and Outer Banks, the new show The Night Agent and the film You People.
The company has urged investors to stop fixating on its subscriber additions and instead look at traditional financial metrics like sales and profit. But Wall Street has long treated Netflix like a growth stock, giving it a higher valuation than its peers in media because of its long-term potential.
That potential is largely predicated on the number of people who use Netflix.