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#Netflix stock drops 10% as new subscribers fall short

#Netflix stock drops 10% as new subscribers fall short

Shares of Netflix were walloped on Tuesday after the company said it added 4 million net subscribers globally in the first three months of the year, falling short of Wall Street’s expectations of 6.2 million new subscribers.

The streaming giant behind hit shows like “Bridgerton,” “Cobra Kai” and “Big Mouth,” disappointed investors further when it said it expected to add a mere one million new subscribers in the second quarter, compared with the more than 10 million subscribers it added during the same period last year when nationwide lockdowns first took hold.

The stock dropped more than 10 percent in late trading — placing the stock in official correction territory. Shares recently traded down 9.95 percent to $494.88 a share.

The Los Gatos, Calif., company founded by Reed Hastings blamed pandemic-related production delays in Hollywood as well as heightened streaming competition for the first quarter slowdown.

“We believe paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays,” Netflix said in a letter to shareholders.

The streaming giant in January announced it had ended 2020 with a record 204 million worldwide subscribers as demand for streaming videos soared — thanks to pandemic-related lockdowns that shuttered most other forms of entertainment.

At the time, Netflix warned that demand for its services could slow as the economy reopened and said it expected to log about 6 million new subscribers in the first quarter.

The company Tuesday said the pullback was steeper than anticipated, but predicted the demand will pick back up in the second half of 2021 as shows and movies delayed due to the pandemic start getting released.

Despite the disappointing subscriber numbers, the company reported a quarterly profit of $1.71 billion, or $3.75 a share, an increase of 140.7 percent over the year-earlier period as overall subs continue to trend higher. Revenue rose 24.2 percent to $7.16 billion from $6.64 billion.

Netflix had forecast $1.36 billion in net income and $7.13 billion in revenue for the period, while Wall Street was looking for EPS of $2.97 on sales of $7.13 billion.

Netflix CEO Reed Hastings
Netflix CEO Reed Hastings
AFP via Getty Images

Aside from the pandemic, which slowed Netflix’s machine-like pipeline of new movies and TV shows, the streamer also implemented other changes that may have contributed to its subscriber slowdown. In October, Netflix hiked the monthly price of its most popular streaming plan by a buck to $13.99 a month, and its premium offering by 2 bucks to $17.99 a month.

While Netflix amped up its prices, new competitors looking to gain customers with value-driven offers. Services such as Disney+, which costs $8 a month, can be bundled with Hulu and ESPN+ for just $14 a month, for example. Meanwhile, newer services like Paramount+ and Discovery Plus, not only offer free trials, but also a ton of exclusive content and original shows.

Netflix has also been cracking down on password sharing. Last month, the company began testing password enforcement to keep users from sharing their accounts.

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