What just happened? After seeing record growth in subscribers throughout 2020, Netflix has reported a drastic slowdown in the number of people signing up for its service. The news saw its shares fall as much as 13%, despite reporting revenue and profit that exceeded analysts' expectations.
Netflix added 4 million new subscribers during the first quarter. That was lower than its own expectations of 6 million and fewer than half the 8.7 million Wall Street expected. The current quarter is predicted to be even worse; Netflix believes only about 1 million people will sign up in Q2, much lower than the 5 million it previously predicted and 9 million fewer than the same period last year. It would also mark the company's slowest quarterly growth to date.
The pandemic has been responsible for both the growth in Netflix's subscribers and the slowdown. With much of the world under stay-at-home orders, more than 36 million people signed up last year to take Netflix's global membership numbers to over 200 million.
But Covid-19 also impacted production of Netflix's original shows, leaving a lighter-than-usual content slate that it believes is slowing growth. The other factor is that as vaccines roll out around the world and restrictions lift in many countries, people are opting for outdoor activities after being stuck inside for so long.
Netflix is also facing increased competition from streaming rivals such as Disney+. It took just 16 months for the Walt Disney Company to attract 100 million subscribers to its service, thanks to shows including The Mandalorian and WandaVision.
Despite the slowdown, Netflix's revenue was up 24% YoY to $7.16 billion during the three months ending March, but that didn't stop shares falling 13% to $484.35 in after-hours trading, wiping $25 billion off its market cap.
Netflix believes its growth will pick up pace again during the second half of the year when new seasons of The Witcher, You, and Money Heist arrive, along with star-studded features including Red Notice and Don't Look Up.