Like its comedy "Don't Look Up," the skies could be falling for Netflix.
Netflix (NFLX) stock has fallen 41% from its highs just two months ago. It is gaining customers at a painfully slow pace. The competition is heating up.
The company's answer to all of this: It raised prices only on North American customers.
After climbing to the top of the streaming mountain, Netflix is struggling to climb higher as its rivals gain more ground.
"It looks like they're killing maturity," Michael Nathanson, a media analyst at MoffettNathanson, told CNN Business. “They keep raising their prices, and to keep up with the level of customers they have now, they constantly add more and more new content, and with peaks and valleys content is inherently a difficult business to predict. "
Don't look up
It wasn't that long ago that Netflix was a stock darling, but those days now feel like aeons ago. The company's stock peaked just south of $700 in November, but fell to nearly $400 on Friday.
Netflix ended 2021 with 221.8 million subscribers. It costs significantly more than others in the streaming marketplace, including Disney, which is one of its closest competitors. Disney had 118.1 million subscribers as of October, and increased subscriptions by 60% between October 2020 and October 2021. During the same period, Netflix grew just 9%.
Disney has not yet reported its financial results for the last three months of 2021. But Netflix's growth slowed even further in the fourth quarter, to just 8%. (And Disney's growth last quarter shook Wall Street, too.)
Netflix is struggling to find more people to sign up in the markets it's been playing for the longest — particularly the United States — noted Nathanson. The company will have to "start moving aggressively following growth in developing markets," such as India and other Asian Pacific countries, to keep moving forward, he said.
The problem with relying exclusively on subscriptions for revenue is this: After a while, you no longer have people who haven't subscribed. That's bad news for Wall Street investors, who are mostly concerned about the company's ability to grow.
Zak Shaikh, vice president of programming at research-based media firm Magid, believes Netflix's collapse is more of a "Wall Street thing," not "something that shows a business is in trouble."
"They still added the sub, and they still have the same high usage and viewing metrics," he said. However, even Shaikh pointed out that in the long term, "Netflix (NFLX) will have to deal with the fact that you can't continue to add customers."
In a way, the company has tried to offset its slow growth by investing in other verticals like gaming. Another approach is to raise prices, but this can prove difficult as fierce competition ramps up.
Netflix red notice
While the price hikes will probably help offset its sluggish sign ups, they could lead to further stagnation for Netflix.
For some consumers, the price increases — even smaller ones — given that Netflix has so many competitors at its doorstep, it's a lot to ask. CNN's parent company WarnerMedia's rivals such as Disney+, Peacock and HBO Max are also vying for a share of the consumer's streaming budget. A dollar here or there counts for a consumer's wallet.
Netflix acknowledged Thursday, saying that competition is "somewhat affecting our marginal growth."
On Thursday's post-earnings call, Netflix co-CEO Reed Hastings also pointed out that there were several reasons for the company's weak financial outlook, including the "ongoing COVID overhang" and economic difficulties.
But he also expressed confidence in the future of streaming, as well as Netflix's large market size and stable execution.
"For now, we are staying calm," he said.
But will Hastings remain calm at the end of 2022? Will investors?
"The intensity of the competition is going to increase in 2022," Nathanson said. "You have games being rolled out on streaming. You have Lord of the Rings coming from Amazon (AMZN). You have Discovery and HBO Max merged, so there's more content. And Disney's backend content slate." is coming."
"I think 2022 will be a concern for Netflix about growth and competition," Nathanson said.