After the US stock market opened on April 19th, the streaming media giant$Netflix Inc (NFLX.US) $Released results for the first quarter of fiscal year 2022. The growth trend in this financial report has attracted a lot of attention because the net new subscribers in the fourth quarter of last year and the outlook for net growth in the first quarter of this year were lower than expected.

Result,The latest earnings report is once again a big surprise.The number of net paying users worldwide fell by 200000, the first time in 11 years that net subscribers fell instead of increasing, while the company had expected an increase of 2.5 million and the market had expected an increase of 2.73 million.

Nai Frisbee tumbled more than 25%, forcing its share price to $260, the lowest in more than three years since the end of December 2018. Netflix Inc also plunged 25 per cent in after-hours trading when last year's four seasons report was released in late January.

Streaming media stocks such as Roku, Spotify and Walt Disney Company also fell sharply after trading, while Internet technology stocks such as Amazon.Com Inc, Microsoft Corp and "Yuan Universe" Meta all fell. Analysts may reconsider their forecasts for the entire industry. Netflix Inc was the first large technology stock to announce results.

Worried about user growth, Netflix closed down 44% this year, outperforming the s & p 500 and down nearly 8% over the same period. At one point on Tuesday, the stock rose 4%, rebounding from an one-month low, but traded less than $350, making it the worst performer among FAAMNG star tech stocks, down 42% this year.

Since US stocks reported poor quarterly results last year on January 20, Netflix Inc has fallen more than 31 per cent, but not much from the low at the end of January (about 3 per cent). This is partly because Pershing Square Management, owned by billionaire hedge fund manager Bill Ackerman, snapped up Netflix Inc's share price when it fell below $400 for the first time, analysts said.

Revenue in the first quarter rose nearly 10% year-on-year but fell short of expectations. EPS was better than expected but declined year-on-year. Net users lost for the first time in 11 years.

According to the financial report, total revenue in the first quarter of this year was $7.87 billion, up 9.8% from a year earlier, slightly below the company's forecast of $7.9 billion or 10.3% year-on-year, and below market expectations of $7.93 billion. EPS per diluted share was $3.53, down nearly 6% from $3.75 a year earlier, but higher than analysts' expectations of $2.89.

The most surprising decline in global net paying users for the quarter was 200000, the first negative figure since 2011.The company had expected a 2.5 million increase, the smallest increase since the second quarter of 2021. It increased by 8.28 million in the fourth quarter of last year and nearly 4 million in the first quarter of last year. Netflix Inc had more than 220 million global users at the end of last year, making it still over 200m at the end of March this year.

Netflix Inc expected fewer subscribers in the first quarter than usual in January, as most of the most high-profile content will be released at the end of the first quarter, including the second season of Bridgeton and Netflix Inc's original sci-fi film The Adam Project, starring Ryan Reynolds, starring Deadpool.

The company's guidance for the second quarter of this year is also generally poor: global net paying users are expected to plummet by 2 million, or two consecutive quarters of net decline, adding 1.5 million in the same period in 2021, while the market had expected a net increase of 2.4 million in the second quarter; second-quarter EPS is expected to be $3, analysts expect $3.02; second-quarter revenue is expected to be $8.05 billion, analysts expect $8.23 billion.

In terms of net new user data, Netflix Inc is likely to have the worst year in its history since going public, Bloomberg said.

Netflix Inc expects second-quarter revenue to maintain a year-on-year increase of about 10%. On a foreign exchange-neutral basis, average income per member (ARM) growth is roughly medium to high single-digit percentage, and the full-year operating profit margin target for 2022 will remain unchanged from 19% to 20% set at the beginning of the year.

The "sharp slowdown" in income growth is all to blame for the epidemic, inflation, increased competition, shared accounts for more than 100 million households and withdrawal from Russia

In its letter to shareholders, the company admitted that "revenue growth has slowed significantly", and the obstacles affecting "income generation" includeThe entry of traditional media has led to increased competition in the streaming industry, household penetration is already relatively high and more than 100 million households worldwide share accounts with others, and inflation erodes people's budget allocation for non-essential items such as subscription services. and temporarily withdraw from the Russian market and close user accounts.

"in the short term, revenue is not growing as fast as we wanted," the company said. Similar to the language of the four Seasons published in January, Netflix Inc blamed the slowdown in revenue growth from 2021 on "the epidemic in 2020 caused us to rise too much, casting a shadow over subsequent performance comparisons."The company also listed four main interrelated factors to explain why revenue growth was lower than expected:

First, the growth rate of entering its potential market (broadband households) depends in part on factors beyond the company's direct control, such as the popularity of connected televisions, acceptance of on-demand entertainment and data costs. But the company believes that all broadband households will become its potential customers in the future.

Second, in addition to 222 million paying households, the company estimates that more than 100m additional households are sharing accounts with existing users, including more than 30 million households in the core market in North America. This means that it becomes more difficult to increase membership in many markets.

Third, while competing for viewing time with competitors such as YouTube, Amazon.Com Inc, Hulu and Walt Disney Company +, more and more traditional entertainment companies have begun to enter streaming services, resulting in the loss of some users and income from Netflix Inc.

Fourth, macro factors may also have a negative impact on Netflix Inc's income, including weak economic growth, rising inflation, Russia-Ukraine conflict and other geopolitical events, as well as the continued interference of the COVID-19 epidemic.

It lost 700000 users when it withdrew from the Russian market, and the loss of 600000 users in North America after the subscription price increase was the largest in history.

In explaining "losing subscribers for the first time in more than a decade," Netflix Inc said it was mainly related to the suspension of service in Russia and the deletion of all Russian paying members.

The incident led to a 700000 reduction in the number of net paying users in the quarter, which would have increased by 500000 globally. Of this total, quarterly net users in the EMEA (Europe, Middle East and Africa) region fell by 300000, excluding the impact of Russia, which also slowed business in Central and Eastern Europe in March.

The company's net paying users in Latin America fell by 400000, dragged down by macroeconomic weakness and price increases. Net paying users in North America fell by 600000, mainly due to the loss of subscribers due to higher subscription fees at the beginning of the year, but the price increases in turn "contributed to significant revenue growth." The Asia-Pacific region is the only market with a net increase in Netflix Inc's users, but the increase of 1.09 million is still below market expectations.

The analysis pointed out that Netflix Inc, as the "big brother" of the streaming media industry, may have added less than expected subscribers for three consecutive quarters, indicating that subscriber growth is entering a plateau, especially in the core US market. Netflix Inc's subscriber decline in the first quarter was the biggest in its history.

According to financial blog Zerohedge, the market had expected 87000 net new paying users in North America, up from 450000 in the same period last year; 950000 in EMEA and 1.81 million last year; 334000 in Latin America and 360000 last year; and 1.2 million in the Asia-Pacific region and 1.36 million last year.

Increased competition in streaming and rising investment costs for content led Netflix Inc to test his pricing power earlier this year, raising monthly subscription prices in the core North American market as well as in the UK and Ireland for the first time since 2020. The company also said last month that it would be the first to test charging for shared accounts for non-family members in Central and South America. Wall Street expects all of this to reduce net user growth.

The company admitted that "the user retention rate in the first quarter of this year is also slightly lower than our official forecast, although it is still at a very healthy level (which we consider to be the best in the industry)." The analysis pointed out that when the four Seasons report was released last year, Netflix Inc executives "quietly admitted" that competition from other streaming platforms had a negative impact on its growth.

Netflix Inc promised to activate the stock market, focusing on personalized recommendations, overseas local content production and the monetization of multi-family shared accounts.

Netflix Inc said, "the key to our success is whether we can create wonderful entertainment programs from all over the world, present them to users in a highly personalized way, and win more views than our competitors." these are its core advantages and competitive advantages.

The company plans to continue to re-accelerate audience and revenue growth by improving the quality of its services, especially programs and personalized recommendations. Netflix Inc recently launched a "double like" function, which can better improve personalized recommendations and the overall experience according to the preferences of users.

The company will also better activate the stock market, that is, "how best to monetize the phenomenon of sharing the same account among different families", such as the launch of a new multi-family fee-sharing feature in three Latin American countries in March. Although Netflix Inc believes that this is "a huge short-and medium-term opportunity", he also admits that it is impossible to perfectly monetize the phenomenon of multi-family sharing.

In the long run, "most of our growth will come from outside the United States," the company said, through localized features such as content, personalization and language presentation in different parts of the world, rather than the traditional "export of American content overseas":

Our long-term goal is to maintain double-digit revenue growth, increase operating profits faster while expanding profit margins, and generate growing positive free cash flow. During the slowdown in revenue growth, assuming there are no significant fluctuations in foreign exchange, we strive to keep the minimum operating margin at the current level and will strive to steadily increase operating margins once revenue growth accelerates again.

In addition:

The company said that in the first quarter of this year, average income per member rose 2% from a year earlier, resulting in a foreign exchange loss of $280 million, but a non-cash unrealized gain of $162 million after remeasuring euro-denominated debt.

Operating profit of $2 billion was higher than the company's forecast of $1.8 billion at the start of the quarter due to lower-than-expected content expenses.

Net cash generated by operating activities in the first quarter was $923 million, compared with $777 million in the same period last year. Free cash flow was $802 million in the quarter, compared with $692 million in the same period last year. The company continues to forecast positive free cash flow for the year 2022 and beyond.

After repaying $700m of senior notes, the total debt at the end of the first quarter was $14.6 billion, close to the ceiling of the total debt target of $15 billion. The company has $6 billion in cash, leaving net debt at the end of the quarter at $8.6 billion and no share buybacks.

In terms of capital expenditure, two acquisitions (leading visual effects company Scanline and game studio Boss Fight Entertainment) were completed in the first quarter, reducing cash by $125 million. The company also announced the acquisition of Helsinki-based gaming company Next Games, which has completed its offer and is expected to close in the second half of 2022.

Wall Street hopes that Netflix Inc will add a subscription model with advertisements. Increased competition may weaken the pricing power, and games are a new growth point.

It can be said that today's Netflix Inc's poor financial results and the company's own explanation are basically in line with Wall Street's expectations: in addition to the intensified competition in its own streaming media field and the saturation of the North American market, there are many new developments in the first quarter, such as the impact of high inflation on disposable income and the loss of Russian users. Netflix Inc's price increase will also lead to the loss of certain users. All this keeps the market pessimistic.

A new report by media consultancy Kantar found that soaring inflation, which reached its highest level in 30 years, forced many British households to cut back on unnecessary spending, with about 1.5 million people canceling their subscriptions to streaming video platforms in the first quarter, an increase of 500000 over the previous quarter. The trend in the UK can be inferred to other countries. Increased competition has also made Netflix Inc no longer the first choice for streaming media subscriptions.

In addition to fierce competition with other streaming media suppliers, Netflix Inc also faces a "struggle" with the outbound needs of people in the "post-epidemic era", making it more and more difficult to attract sticky attention from users. Many analysts believe that the company's slow growth will be a drag on its share price performance, but JPMorgan Chase & Co is still bullish on Netflix Inc for a long time and expects growth to improve in the second half of this year, with a target price as high as $605.

Others began to question the business model of streaming media, especially whether the unadvertised browsing models of Netflix Inc and Apple Inc will lose competitiveness, and subscriptions with ads will reduce users' monthly fees, which is more effective for price-sensitive users under high inflation. Deutsche Bank is worried that Netflix Inc's pricing power may decline if user participation remains stable as more and more alternatives enter the market.

Michael Pachter, an analyst at Wedbush, believes that in addition to not including ads, Netflix Inc is also used to releasing all the episodes of the new season at the same time, which may maintain a high turnover rate for users, as price-sensitive consumers can unsubscribe after watching. Others say Netflix Inc may be busy pursuing "symbolic victories" such as best picture Oscars, making it too expensive to develop and acquire content:

Ironically, Netflix Inc may have won many battles, but lost the war in the end. "

Netflix Inc didn't say much about "games" in his shareholder letter, saying only that "people like to watch TV and play games", but Wall Street still regards "marching into video games" as Netflix Inc's next potential growth engine. In November last year, Netflix Inc officially announced his entry into the game market, launching five mobile games on his game platform, and two of them combined games with the popular show "Strange things" on IP.