The Los Gatos,
California, company added 8.3 million worldwide subscribers during the
October-December period, about 200,000 fewer than management had forecast.
Besides releasing its fourth-quarter results Thursday, Netflix also projected
an increase of 2.5 million subscribers during the first three months of this
year, well below analysts' expectations for a gain of 4 million, according to
FactSet Research.
The disappointing news
caused Netflix's stock price to plunge by about 20 percent in extended trading
after the numbers came out, deepening a steep decline during the past two
months.
It capped a challenging year for Netflix
after it reveled in eye-popping gains during the pandemic lockdowns of 2020
that drove homebound people to its service.
Netflix picked up 18.2 million worldwide
subscribers during 2021, its slowest pace of annual growth in five years. It
came after Netflix gained more than 36 million subscribers during 2020. The
service now boasts nearly 222 million worldwide subscribers worldwide, more
than other video streaming leader.
But other services backed by deep-pocketed
rivals such as Walt Disney and Apple have been making inroads in recent years,
and a bevy of other networks also are wading into video streaming in an attempt
to grab eyeballs and a piece of household budgets. The escalating competition
is one reason Netflix decided to expand into video games last year.
“The 2022 backdrop for Netflix seems to
have been set with a theme of competition abound," said Third Bridge
analyst Joe McCormack.
While acknowledging the competition is
having a “marginal" effects on its growth in i ts quarterly shareholder
letter, Netflix emphasized its service is still thriving in every country where
it's available.
In a Thursday conference call, Netflix
executives also said uncertainty caused by the ebb and flow of the pandemic
during the past year has made it more difficult to gauge future growth.
COVID “has created a lot of
bumpiness," co-CEO Ted Sarandos said. The company's other co-CEO, Reed
Hastings, also expressed some frustration before adding, “For now, we're just
like staying calm and trying to figure (it) out."
Despite the choppiness, the company is
faring well financially, even though its profit margins are being squeezed and
cash is being drained by spending on more original programming to attract
subscribers. Netflix earned $607 million, or $1.33 per share, in the fourth
quarter, a 12 percent increase from the same time in the prior year.
Fourth-quarter revenue rose by 16 percent to $7.7 billion.
Investors, though, are getting more worried
that Netflix may be nearing its peak in popularity. Those concerns have caused
Netflix's stock price to plummet by more than 40 percent from its peak of
roughly $700 reached in mid-November.
The opportunities for future growth have
become particularly tough in Netflix's biggest market - the US and Canada -
where it's starting to appear that most households interested in subscribing to
the service already have an account. Netflix ended 2021 with 75.2 million
subscribers in the US and Canada, translating into a paltry one-year gain of
1.3 million subscribers in that region.
Last week, Netflix raised its price by
roughly 10 percent within the US and Canada - a move that could cause some
subscribers to cancel the service, based on the company's past history with
previous price hikes.
On the upside, Netflix on Friday will
unveil the fourth season of Ozark, one of its most popular series and a
potential magnet for new subscribers.