Make no mistake, Netflix’s catastrophic Q1 earnings report Tuesday marks an inflection point for the entire video industry.
Netflix shares dropped 36% after the company said subscriber totals fell slightly (200,000 accounts) for the first quarter, and were expected to drop 10 times as much for the second quarter. Those would be the first quarters in a decade where Netflix didn’t see its subscriber rolls. Wall Street was suitably dismayed.
To ameliorate those declines, Netflix said it’s now planning a cheaper ad-supported tier, as many observers had long urged, and will begin to do something about a whopping100 million password sharers.
It’s a painful comeuppance for a company notable for its rather smug self-assurance that its unique corporate culture and industry-busting embrace of streaming at massive scale were the right approach for the future of entertainment. Tech giants Amazon and Apple dove into the streaming pool, as did all the major media companies. All wanted a piece of the price premium Wall Street was attaching to streaming ventures with global potential.
No more though. While Netflix share prices were absolutely battered (remember, the 36% drop comes on top of a similar-sized but slower decline since a mid-November peak of $701). Now shares are trading at around $226 apiece, and it’ll be a long time before those resuscitate.
“Even if the long-term (Total Addressable Market) is unchanged, the time to get there appears far longer than management anticipated,” wrote LightShed Partners analysts Rich Greenfield, Brandon Ross and Mark Kelley. “Simply put, Netflix felt vulnerable (Tuesday) in a way that it never has before, similar to how we felt about Mark Zuckerberg’s comments on Meta’s last earnings call.”
Netflix is even getting bounced from the FAANG fraternity, the mega-cap tech titans that have been leading the stock market for much of the past half decade. It’s suddenly a new era in…