Netflix Q1 Results: Subscribers decline for the first time in a decade.

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Number of subscribers - Netflix lost 200,000 subscribers in Q1. The total subscriber count now stands at 221.64 million. The analyst was expecting an addition of 2.51 million subscribers in line with management commentary in the previous quarter. 

The fall came as a surprise to the analysts. For the first time in more than a decade, Netflix said it lost subscribers in a quarterly earnings report.

Subscriber projection for Q2 - Netflix has said it expects an even steeper decline in new users in Q2. It sees subscribers declining by 2 million in the fiscal second quarter, whereas consensus analysts were looking for a gain of 2.4 million.

Revenue in line with estimates - The company's revenue increased nearly 10% to $7.87 billion, in-line with analysts' expectations of $7.9 billion.

Net income during the quarter ended March 31 fell 6.4% to $1.6 billion, down from $1.7 billion the year prior. Excluding items, the company earned $3.53 per share, well above the $2.89 per share analysts had expected.

Free cash flow - The company’s free cash flow amounted to $802 million during the quarter, up from $692 million a year earlier.

Why did the subscriber base fall?

Netflix blamed increased competition, password sharing as well as inflation and the ongoing Russian invasion of Ukraine for the stagnant subscriber growth.

Netflix would have gained subscribers globally had it not been for its decision to suspend operations in Russia. The decision to stop subscriptions in Russia cost them 700,000 subscribers. It was the difference between a net addition of 500,000 subs and the actual result of a 200,000 loss. 

If they had not stopped subscriptions in Russia, the overall addition would have been less than what they had projected for Q1. An adjusted growth of 500,000 subscribers would have been just one-fifth of the lowest end of the company’s already pessimistic projection in January.

Other factors are also dragging down Netflix subscriber numbers. It raised prices in the US and Canada during the first quarter and has raised them in some other countries as well over the past six months.

Ads on Netflix?

Users may get an option to opt-in for ads based subscription for a lower price, similar to Disney+Hotstar. However, it won't happen right away, but Netflix executives have announced an advertising-supported version of the streamer is in the works. Company founder and co-CEO Reed Hastings said, " It was now clear many consumers wanted the option to pay less in exchange for seeing ads. I am a fan of consumer choice. And allowing consumers who would like to have a lower price, and are advertising-tolerant, to get what they want, makes a lot of sense. So that’s something we’re looking at now."

The company would start internal discussions about how it can include advertising on the service over the next year or two before making a final decision.

Password sharing: Netflix estimates that in addition to its 222 million paying households, access is being shared with more than 100 million additional households through account sharing. It warned a global crackdown could be coming.

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