Netflix & The Streaming Wars

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20 Apr 2022

Today Netlfix announced they had actually lost users for the first time in a decade. 200,000 users in the last quarter to be precise. Investors weren't pleased and the shares decreased after hours over 20%.

But Why?

Netflix is and has always been a growth company, investors have always seen huge growth numbers and been prepared to pay excessive multiples. While some people may not agree, this is often common practice for growth companies.

The issue here, is that growth companies can only hold high multiples, provided they continue to grow. In the case of Netflix, not only did the stop growing last quarter, but then actually had user numbers decline.

Management has sighted a few reasons, with their biggest being password sharing. For those that don't know, Netflix is only "meant" to be used within the same household. However, it actually gets used in a different way. I have a family subscription and my family across the country use my Netflix account.

This is something Netflix has been running a trial on and started to phase out in certain areas. So maybe the loss of users is down to a poorly received product "improvement". You also cant forget that Netflix has continually increased prices for their streaming service, while also losing content from their platform.

Finally, you can't overlook strong competition. Apple, Amazon & Disney to name just a few are going hard on their streaming platforms. With the point of difference being these three companies have other revenue streams backing them up.

Competition

Competition will either make you stronger or defeat you. In this case Netflix has some massive global competitors. Interestingly, none of them have user numbers like Netflix. So it will be interesting to see if their user numbers also decline, or if they have increased from taking users from Netflix.

If their competitors numbers also decline, it would suggest this impact is less to do with the streaming wars and more to do with a cultural shift. Maybe induced from the Pandemic.