Gloomy Netflix forecast erases much of the stock’s pandemic gains

The Netflix logo is seen on a remote control for TV, in this illustration taken January 20, 2022. REUTERS / Dado Ruvic / Illustration

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LOS ANGELES, January 20 (Reuters) – Netflix Inc shattered hopes of a quick recovery after predicting weak subscriber growth in the first quarter on Thursday, sending shares down nearly 20% and wiping out most of the remaining pandemic-driven gains from 2020 .

The world’s largest power service estimated to add 2.5 million customers from January to March, less than half of the 5.9 million analysts had predicted, according to Refinitive IBES data.

Netflix dampened growth expectations, citing the late arrival of expected content, such as the second season of “Bridgerton” and Ryan Reynolds’ time travel film “The Adam Project”.

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Shares in Netflix fell nearly 20% to $ 408.13 in aftermarket. Competitor Walt Disney Co. (DIS.N), which has invested the future in building a strong power business, saw its shares fall 4%. The power unit Roku Inc (ROKU.O) fell 5%.

Nasdaq futures fell almost 1%, indicating that traders expect the technology-heavy index to open lower on Friday.

Netflix added 8.3 million customers from October to December, when it released a large selection of new programs, including the star-studded films “Red Notice” and “Don’t Look Up” and a new season of “The Witcher”. Industry analysts had estimated 8.4 million.

The company’s global total number of subscribers at the end of 2021 reached 221.8 million.

In a letter to shareholders, Netflix said it believed the ongoing COVID-19 pandemic and economic difficulties in several parts of the world such as Latin America may have kept subscriber growth from picking up again to levels seen before the pandemic.

COVID “created a lot of unevenness” that made it difficult to project the number of subscribers, “but all the basics of the business are pretty solid,” CEO Ted Sarandos said in a post-revenue video interview.

The company posted an adjusted earnings per share of $ 1.33, which breaks analysts’ consensus estimates of 82 cents. Revenue reached $ 7.71 billion, in line with estimates.

Last week, Netflix raised prices in its largest market, the United States and Canada, where analysts say growth is stagnating and is now looking for growth abroad.

The company ran a roller coaster during the pandemic, with steep growth in early 2020 when people stayed home and cinemas closed, followed by a decline in 2021. Netflix picked up more than 36 million customers in 2020, and 18.2 million in 2021.

Netflix’s subscriber growth in 2022 had been expected to stabilize and return to the pace recorded before the pandemic, when it added 27.9 million subscribers in 2019, analysts say. The company’s upcoming list includes new parts of “Ozark” and “Stranger Things” and a three-part Kanye West documentary.

“The pandemic blockades drew tons of demand, and it is taking longer than expected to return to normal,” said Pivotal Research analyst Jeff Wlodarczak.

Competitors including Disney and AT&T Incs (TN) HBO Max, are pouring billions into creating new programming to take part in the power market.

Netflix said competition “could affect our marginal growth somewhat,” but added that it continues to grow in all countries where new streaming options have launched.

“Even in a world of uncertainty and increasing competition, we are optimistic about our long-term growth prospects as streaming replaces linear entertainment worldwide,” Netflix said in its shareholder letter.

In their video interview, executives tried to reassure investors that Netflix’s long-term prospects were bright. Sarandos said the service had not seen a decline in customer engagement or retention, and he estimated that the transition to streaming from traditional television would continue to open up opportunities worldwide. The stock stayed down almost 20 percent.

“The pace of migration can be a little difficult to call from time to time when there are very global events or even local conditions,” Sarandos said, “but it certainly happens. There is no question of that.”

The company is looking for new ways to attract customers, including with mobile video games. Netflix said it released 10 games in 2021, was pleased with the early reception and wanted to expand its game portfolio in 2022.

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Reporting by Lisa Richwine and Dawn Chmielewski in Los Angeles; Additional reporting by Eva Mathews and Tiyashi Datta in Bengaluru and Noel Randewich in Oakland, California; Edited by Sriraj Kalluvila and Lisa Shumaker

Our standards: Thomson Reuters Trust Principles.

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