Mortality is coming down hard on Netflix (NFLX 4.17%) these days. The world's leading premium streaming service has now served up back-to-back quarters of disappointing financial results. The stock tumbled 22% last time out. It could be even uglier this time by the time the market closes on Wednesday.
Netflix didn't just miss its subscriber target, which called for 2.5 million net additions through the first three months of the year. The platform closed out the quarter with fewer global streaming subscribers than it had when the period began. Netflix also fell short of its earlier revenue guidance.
Things look bad, and the near term is going to be even worse. Its fresh outlook for the current quarter is short of what analysts were modeling on both ends of the income statement. If investors thought Netflix ending the first quarter with 200,000 fewer subscribers was pretty rough, they're not going to like its new guidance where it's bracing investors to expect 2 million in net defections for the second quarter. There's a cliff. There's a hanger. Let's see how Netflix gets out of this cliffhanger.
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Reinventing Netflix
"I don't have time for this," Julia Garner says channeling Anna Delvey during a pivotal scene of Netflix's Reinventing Anna. "I don't have time for you."
Streaming subscribers are apparently feeling the same way about Netflix. It's surprising at first glance. More than 1.65 billion hours were collectively spent streaming Squid Game in the first four weeks of its availability on the platform late last month. The two largest original films it ever put out -- in terms of viewership -- have come out in the last five months. Netflix has never been more relevant than it is right now, but sometimes even the content kingmaker overplays its hand.
It's not a coincidence that Netflix stumbled after increasing prices during the first quarter. The 11% jump for its standard plan may seem tame in an inflationary climate where a lot of things are getting more expensive, but this is the sixth rate hike at Netflix over the past eight years. We're talking about a 94% increase in that time. It does add up.
We can't blame the shortfall entirely on the increase. Netflix was feeling pretty human before its latest report. The same market darling that used to routinely smoke its own guidance has now fallen short of its subscriber forecast in three of the past five reports. Expectations weren't necessarily high, but it was a perfect storm beyond just the new pricing in the U.S. and select international markets.
There's a glut of competing services nowadays, and while that has been the case for years we're now at the point where the competition has achieved critical mass scale. There is plenty of pop-culturally relevant programming on rival platforms, and loyalty is difficult when it's so easy to switch in and out of streaming services.
From an investing perspective, it will be difficult for Netflix to bounce back in the near term. This is a big miss, and it will ripple through all of the other streaming services stocks. However, the step back in global subscriber count shouldn't last much longer than the first half of this year. Netflix isn't standing still. It will crack this code, and likely emerge as a stronger company with a better business model by the second half of the year. Whether it's the gaming initiative or its vow to crack down on password sharing -- as it estimates more than 100 million homes are sharing someone else's account -- this is a wake-up call for more than just investors. Netflix will reinvent itself. It has time for this. It has time for you.
