Today’s Topics

Hello,

Today we have 3 charts for you, exploring Netflix’s recent troubles.

• Netflix’s subscriber trend: Decline is driven by US & Canada

• Video streaming market in US: Netflix is losing market share

• Netflix’s rising content cost: High costs with declining users is troubling

Netflix has been one of the best growth stories of the last decade. It is part of the fabled “FAANG” moniker and has delivered stellar returns to investors.

However, the last few quarters have not been good for Netflix.

In the last 2 quarters, Netflix has lost ~1.2m subscribers, going from 221.8m in Q4-21 to 220.7m in Q2-22.

The effect has been worst in US & Canada region where it lost ~1.9m, followed by EMEA and LATAM where it also lost subscribers.

APAC, however, showed strong growth of +2.2m subscribers.

Markets haven’t been kind to Netflix.

The declining numbers have led to a rout in its market cap. The stock price has plummeted by 65% - from $691.7 at its peak in 2021, to only $242.8 at close of day, Sept 20, 2022

Increasing competition is one of the key reasons behind Netflix’s woes.

Some industry watchers are calling it the “Streaming Wars”.

In the past Netflix was one of the only few streaming providers. However, as the US market has matured over the years, many traditional media giants have entered the market.

These companies aren’t afraid to spend on content and marketing to acquire subscribers.

According to Antenna, an industry watcher, Netflix’s subscriber market share in US has declined from 42% to 26% over the last 2 years.

Most of this share gain has gone to services like Apple TV+, Paramount+ and Peacock. Disney+ has also been able to maintain share in a growing market.

Meanwhile, Netflix’s content cost has continued to grow.

In 2021 Netflix spent $17B producing and delivered content to users, most of it on original content, like Stranger Things. This cost has more than doubled, from ~$8B, five years ago.

In 2022, Netflix was planning to spend upwards of $20B on content but has since revised down its spending to ~$17B.

Making original content that users enjoy is not just difficult but also very expensive. For every hit show like Stranger Things, there are many more who are a flop.

And Netflix’s competitors aren’t sitting still either - They have their own plans to spend big on content - more than $100 billion in 2022.

Netflix is in a crowded market, with big pocketed competitors, and its users are expensive to please.

While its users can chill, Netflix won’t be able to.