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Netflix dropped its latest horror content on Thursday, and it features a team-up of two longtime villains: a swelling budget and shrinking subscriber growth.

Despite a fourth quarter filled with high-profile, blockbuster content, the streaming giant couldn't meet its own subscriber projections in the fourth quarter. Netflix issued an even more grim forecast for the next three months, setting up a potential sequel in a budding horror franchise.

From Red Notice to Red Flags

Going into this week, Netflix shares were already down about 25% from their mid-November peak. Investors have been fretting for weeks about the company's ability to deliver eye grabbing content without breaking the bank on bloated content budgets while also maintaining subscriber growth. To try and boost growth, the company packed the back end of 2021 with high profile releases including star-studded action comedy Red Notice and climate satire Don't Look Up, which have already become the company's two most viewed original movies.

None of that seems to have paid off much. The reopening of the economy in 2021 shifted people away from screens and Netflix's customer growth fell in half from 2020, when lockdowns led to historic signup numbers. Amazon's Prime, AT&T HBO Max, and Walt Disney's Disney+ crowding the streaming market hasn't helped, either. But even with all that, Thursday's numbers were a letdown:

  • Netflix reported 8.3 million net new subscribers in the fourth quarter, below its own projection of 8.5 million and leading to the company's slowest annual growth since 2015 — the stock fell as much as 18% in after hours trading to its lowest since June 2020.
  • Even worse, Netflix said it expects to add just 2.5 million subscribers in the first quarter of 2022, way below the 4 million it added last year.

The Cost of Content: Netflix's revenues grew 16% to $7.7 billion but profits fell 34% to $632 million. Netflix explained this was anticipated because of the cost of new productions — the company predicted it would spend about $13.6 billion on content last year, or a 26% increase.

America's Pain, India's Gain: Netflix now has 222 million subscribers, more than any other streamer, but growth is now concentrated in Asia and Europe while America and Canada may have matured. Stateside subscribers may get fewer deals as the firm now focuses on growth markets: last week, Netflix announced it was tacking $1 to $2 on to all US plans, a month after it cut fees in India where Disney offers monthly subscriptions for as little as a buck.