What happened
Shares of the video streaming giant Netflix (NFLX -3.26%) fell hard this week after the company reported a net subscriber loss in its first quarter and said it expects to lose more subscribers in the second quarter.
Netflix investors were obviously concerned about the news and sent the stock falling 34.6% over the past week, according to data from S&P Global Market Intelligence.
So what
Netflix lost about 200,000 subscribers in the first quarter, marking the company's first-ever drop in subscriber growth in a decade. The loss of subscribers was bad enough, but it was also a shock to investors because management had previously said the company would gain 2.5 million subscribers.
Image source: Getty Images.
It's worth pointing out that the subscriber drop in the first quarter came as the company suspended its service in Russia, which resulted in a net loss of 700,000 subscribers. Netflix's management said that excluding this impact, paid net subscriber additions actually increased by 500,000 in the quarter.
But that explanation didn't pacify investors, especially considering that management said it now expects to lose an additional 2 million subscribers in the current quarter.
Following the company's disappointing results, a slew of analysts downgraded the stock this week, and some cut their price target for the company's shares, leading investors to become even more pessimistic about the streaming company.
Now what
Aside from the impact of removing Russian subscribers, Netflix says that there's too much account sharing on its platform, which is cutting into subscriber growth. Management also said that it's facing stiff competition in an increasingly crowded video streaming space.
Netflix CEO Reed Hastings said on the company's earnings call that the account sharing, along with rising streaming competition, "is really what we think is driving the lower acquisition and lower growth."
What investors will need to be looking at for now is how well the company can tackle these problems by monetizing account sharing and by reinvesting in new content that will help set it apart from its streaming competitors.
