Recently, the Netflix share price drop reached 39% after reporting a significant fall in its subscriber base, and was marked as low as $226.9 per share.
This extends a selloff that has put the company on track for a $60 billion market value.
Now its market capitalization is at 80.4 Billion according to simply wall st.
This is known as their worst day since 2004.
This is the largest single-day decline in the history of Netflix. Netflix’s share price drop has a direct co-relation with losing its subscribers. Let’s see what the real reasons behind the Netflix share price drop are.
Netflix share price drop due to higher expectations that don’t match with reality
Netflix has expected to increase its number of subscribers by millions each quarter.
But actually, it lost 200,000 subscribers in the first quarter, and it is expected to lose another 2 million subscribers next quarter.
Dr. Vikas Gupta explains the situation; “One would expect the corporation to add millions of clients every quarter, which is impossible,” he continued. “Growth will eventually slow down.”
This is the first time since 2011, that Netflix lost its number of subscribers in a quarter.
In 2011, they split its DVD by mail and streaming services, which also led to Netflix’s share price drop.
Because of the war happening in Ukraine, Netflix has decided to leave Russia. That decision made them lose 700,000 subscribers overnight.
The company was able to add up to half a million subscribers in that quarter, but it could not recover the loss that occurred due to an incident in Russia.
This subscriber loss made the investors doubt the company’s growth. This ultimately resulted in Netflix’s share price drop.
Inflation hits hard
With the Covid-19 pandemic, inflation was higher than expected.
In Canada and US, Netflix had to up their prices.
After upping their prices, they lost 600,000 subscribers there.
In the UK, Netflix raised its prices from 1 pound per month to 6.99 pounds per month and eventually to 10.99 pounds per month. This decision made them lose another 1.5 million subscribers only in the UK.
38% of people who canceled the service recently said that they wanted to save some money.
The rasing in the price wasn’t unfair, but the real thing is with the inflation, the cost of living has skyrocketed.
So, the majority of people cannot afford luxuries like Netflix anymore. They are simply cutting off the service to save some bucks.
Password crackdown attempt
Netflix has discovered that 100 million households are using a shared password.
This actually didn’t bother them much, 5 years ago. In fact, they also promoted it.
In 2017, Netflix’s corporate account tweeted that “Loving is sharing a password”.
Now, rules have changed.
Netflix has decided to charge a fee to the primary households which have shared their passwords.
They started their test run in Costa Rica, Chile, and Peru, which is known as an “Extra member” subscription.
Still, Netflix didn’t expose its plans for password sharing for other countries including the US market. Netflix has to do this with caution, otherwise, it will lose more subscribers in the future.
There are lots of families that share the same Netflix password because family members live in different places. This price induction for shared accounts can drive away from the existing customers too. This potential risk also made the shareholders withdraw their shares from Netflix.
The company has to think about effective ways to increase its revenue while ending Netflix’s share price drop.
Netflix has global competitors which have separate customer bases. Disney, Warner Bros. Discovery, Paramount Global, NBCUniversal, Apple TV+, and other streamers have invaded into Netflix client base.
This is also considered to be a reason for Netflix’s share price drop.