The impact of the conflict between Russia and Ukraine on the Internet giants in Europe and the United States began to appear, and Netflix Inc became the first domino to fall.

Netflix Inc released its financial results for the first quarter of 2022 on April 19, local time. Following the avalanche of last quarter, the situation is even more grim this quarter.

Netflix Inc's first-quarter revenue was $7.87 billion, up 9.8 per cent from a year earlier, below expectations of $7.93 billion, while net profit fell 6.4 per cent to $1.6 billion, according to the financial report.More noticeably, Netflix Inc's paid subscribers decreased by 200000 in the first quarter, the first negative growth of Netflix Inc's subscribers since 2011.Netflix Inc expects the loss of users to continue, with the number of paying users worldwide falling by 2 million in the second quarter of 2022.

Affected by the disastrous earnings performance, Netflix Inc's share price plummeted more than 25% in after-hours trading, and Netflix Inc lost more than $38 billion in a few hours, based on the market capitalization of $155 billion at the close of the previous trading day.Market worries about the same type of business companies intensified, streaming media stocks affected by Netflix Inc also appeared violent shocks, Roku, Walt Disney Company, FuboTVz share prices fell in after-hours trading.

"I know investors were a little disappointed by this quarter's results, which is certain," Reed Hastings, Netflix Inc's co-chief executive, admitted on a conference call. "our user growth did not meet expectations."

Netflix Inc Co-CEO Reed Hastings

Netflix Inc's judgment on macroeconomic factors and competitive situation three months ago was not accurate enough. Reviewing Netflix Inc's past data analysis, Bloomberg said that if Netflix Inc's share price continues to close lower on Wednesday, it means that the company's fifth consecutive quarter of results will have a negative effect on the stock price.

Negative growth in subscribers, just because of the conflict between Russia and Ukraine?

In the first quarter of 2022, Netflix Inc's revenue, profits, subscribers and other key financial indicators were lower than expected. But there is no doubt that in a series of bad data, user growth is a direct factor in the sharp fall in share prices.

The conflict between Russia and Ukraine is one of the direct reasons for the loss of Netflix subscribers this season. Affected by the conflict between Russia and Ukraine, Netflix Inc suspended services in Russia and gradually ended all paid membership business in Russia. Netflix Inc explained emphatically in the financial report that this move led to a net reduction of 700000 in Netflix Inc's paying users. Not long ago, Russian users filed a collective lawsuit against Netflix Inc's withdrawal, demanding that Netflix Inc compensate 60 million rubles.

Netflix Inc said that excluding this factor, Netflix Inc achieved a net increase of 500000 in the number of paid subscribers worldwide in the first quarter. But even excluding the impact of the conflict between Russia and Ukraine, Netflix Inc's performance in the first quarter of 2022 fell far short of market expectations.Before the release of the results, the market expected Netflix Inc to increase its subscribers by 2.5 million in the first quarter. Obviously, Netflix Inc encountered more than geopolitical problems.

At the earnings meeting, Netflix Inc also mentioned the reasons for the slowdown in growth, one of which is the fading of the "dividend" of the epidemic.

Affected by the epidemic in 2020, offline entertainment was suspended, and online streaming platforms received epidemic dividends. Netflix Inc's annual net increase in paid members in 2020 increased by 31% compared with the same period last year, which is also Netflix Inc's fastest growth cycle in the past five years.

The 2020 epidemic allowed Netflix Inc to speed up the "harvest" of potential paying users, but also made Netflix Inc gradually reach the user ceiling. Coupled with the deregulation of the epidemic in Europe and the United States, the pulling effect of streaming media on the "home" economy has been greatly weakened.

In addition, under the tense global economy and serious inflation, consumers have to cut unnecessary expenses in order to cope with the soaring cost of living, the first to bear the brunt is paid video subscriptions. Among them, Netflix Inc was most significantly affected in Europe and the United States, where inflation was the most serious.

British consumers cancelled about 1.5 million video subscription accounts in the first three months of this year, affecting platforms including Netflix Inc, Disney+ and AppleTV, according to CNN, a media consultancy. In terms of households, the number of British households that bought at least one paid subscription fell by 215000 in the first quarter of this year. At the same time, about 38% of respondents said they planned to cancel their subscription to paid video accounts within the next three months.

At the earnings meeting, Netflix Inc also said that some markets, including Latin America, have also lost a certain number of users due to the impact of macroeconomic conditions.

In addition to the macro factors mentioned by Netflix Inc at the earnings meeting, such as the conflict between Russia and Ukraine, the decline in dividends in the housing economy, and global inflation, Netflix Inc's price rise in North America, his stronghold, in the first quarter of this year, was also one of the factors leading to the slowdown in Netflix Inc's user growth.

On January 14 this year, on the eve of the release of financial results for the fourth quarter of 2021, Netflix Inc announced that he would raise prices in North America. Subscription prices in the United States and Canada will rise by $1 to $2 a month. The price increase led to a year-on-year increase in overall revenue in North America (from $3.17 million to $3.35 million), but also led to a loss of 600000 users.

In addition, streaming Red Sea is a long-term dilemma that Netflix Inc faces. "competitors often release very good dramas and movies," Reid recalled the increasingly competitive situation of streaming media on the conference call. As a leader in the field of streaming media, Netflix Inc's position is being challenged.

Data show that Netflix Inc's content market share was 46.6% in the fourth quarter of 2021, which is significantly lower than that in 2020. Netflix Inc's growth slowed down at the same time, Apple Inc's Apple TV and Amazon.Com Inc's Amozon Prime Video began to seize Netflix Inc's market, Walt Disney Company, HBO and other established film platforms' streaming media quickly joined the war. Subscribers to Walt Disney Company's streaming service Disney+ grew by 11.8 million in the first quarter of this year, while Paramount, which did not officially launch the streaming service until June 2021, already has 56 million users.

The growth is not enough, raise the price to make up.

For the concern of income growth and profit growth caused by the slowdown in user growth, Netflix Inc put forward three solutions at the earnings call.

The first is to solve the problem of shared account. Netflix Inc said that there are more than 30 million households sharing accounts in the United States and Canada, and the figure has expanded to 100 million worldwide. And this part of the "whoring" users, Netflix Inc lost as much as 9 billion US dollars a year.

Prior to this, a Netflix master account can be shared by multiple people (usually 5 people), and each person can add a waiting list, movie records, etc., to his or her sub-account. Earlier this year, Netflix Inc began testing additional charges for sharing accounts in Chile, Costa Rica and Peru, which are said to be extended to accounts that share passwords outside their homes.

"if you have a sister who shares the content of your Netflix Inc account with you in other cities, that's good, and we won't shut down the service, but we may ask you to pay a little more so that your family can continue to use our service. "

Netflix Inc said that efforts will be made to improve the business realization level of unpaid users. "this is an issue that we have been thinking about in the past year or two, but because of the rapid development of our business, it was not the focus of our work in the past. But now we need to work very hard to achieve progress in this area. "

Netflix Inc did not disclose when this action will be carried out around the world, but it can be foreseen from Netflix Inc's high-level statement that the "hammer" will not be too far away.

Although executives are looking forward to the release of this part of the payment potential, there is no data on the possible results of the move, and it is unclear whether users will pay extra for the sharing account.

In addition to looking for the possibility of increasing revenue on never-paying users, another measure of Netflix Inc is to raise the unit price of customers.

In early March, Netflix Inc announced an increase in subscription prices in the UK and Ireland, raising the basic subscription fee to 7 pounds a month, about 60 yuan a month, according to the world finance and economics report. If users want high-quality 4K and HRD, the fee is 16 pounds a month.

Netflix Inc also had many price increases before, but Netflix Inc had to guard against the problem of further loss of users caused by the price increase.

In July 2011, Netflix split the original $10 DVD+ streaming service (about $5 each) into a charge of $8 per service (a total of $16). Due to no prior communication with users and excessive price increases, Netflix Inc lost 800000 users by the end of September 2011.

In 2016, Netflix Inc raised the cost of old members to the same $9.99 as new members. Even though the previous system of $9.99 for new users has been in place for two years, a large number of old users have cancelled their subscriptions, and the company's share price has plummeted 16% in after-hours trading. Learned from the previous lesson, Netflix Inc after the price increase is more cautious.

It is not realistic to keep subscription prices at the same level under the influence of rising costs, inflation and other factors, but in the context of fierce competition in streaming media and tight economy, it is more difficult to balance user experience and company revenue.

As a result of the latest price increase, the loss of 600000 users in North America in January has given a worrying signal. This time, Netflix Inc will expand the scope of price increases to the United Kingdom and Ireland, where users are likely to experience negative growth again in an environment of inflation and rising cost of living.

Whether it is charging for shared accounts or raising the unit price of guests, it does not seem to be enough to fundamentally solve Netflix Inc's problem.So Netflix Inc also put forward a new solution-advertising in this quarter.

Reed Hastings said on Tuesday that Netflix Inc is now considering offering lower-priced subscriptions to users who are not sensitive to advertisements. In short, users may receive ads even if they pay to watch the content.

For a long time, Netflix Inc, who mainly pays for subscriptions, has not added advertisements or other promotional activities to the platform, which has also won Netflix Inc a lot of praise among users.

Those of you who follow Netflix know that I have always been against complex advertising and like simple subscription services very much. "But it's obviously time for Netflix Inc to rethink his business model.As much as I like this, I prefer consumers' choices to get what they want for consumers who want lower prices and are insensitive to advertising. "