Troubles Mount For Netflix As Streaming Giant Opts For Ads, Continues Layoffs

Netflix on Thursday (23 June) said it has laid off 300 employees, which represents around 4 per cent of its workforce.

The cuts come about a month after the streaming giant laid off 150 employees in the wake of losing subscribers for the first time in over a decade.

The second round of cuts in the Netflix workforce mostly affected the company's US employees.

“Today we sadly let go of around 300 employees,” Netflix said in a statement on Thursday.

“While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth. We are so grateful for everything they have done for Netflix and are working hard to support them through this difficult transition," it added.

Netflix plans to pull back on spending growth

Earlier in April, Netflix had warned investors that it would be pulling back on some of its spending growth over the next two years.

The world's dominant streaming service has come under pressure in recent months as inflation, the war in Ukraine and fierce competition from other players, including Disney, Amazon and Apple, has adversely impacted it subscriber growth.

For the first time in a decade, Netflix registered a net loss of 200,000 subscribers in Q1 2022, taking its subscriber base to 221.6 million.

The fall in subscriber base came as a shocker as the company was aiming to add 2.5 million subscribers in Q1 2022, against 4 million for the same quarter last year. Analysts on Wall Street, on the other hand, expected addition of 2.7 million subscribers.

Netflix's downward spiral after record high performance during pandemic

However, the worst is yet to come, for Netflix has predicted a loss of 2 million subscribers globally in the Q2 of 2022.

Around the second or third week in July, later this year, the company will announce its numbers for Q2, while by mid-October, results for Q3 will be public. Assuming the company’s downward spiral continues, the share price could go below the $100 mark, sending its market cap for a toss.

In 2022 alone, the company has registered steep falls in its share price. On 20 January 2022, the closing share price was $508.25, which came down to $350-odd a week later after the results for the final quarter of 2021 were announced. The second fall came last weekend, as concerns around the company’s sustainability and profitability grew.

To put things in perspective, Netflix has wiped out all its gains from the pandemic when its share price went as high as $690-odd in October 2021 from $330-odd in March 2020. Netflix’s shares had not traded below the $200 mark for more than four years, with December 2017 being the last month before April 2022. At the end of 2017, Netflix’s market capitalisation was around $83 billion at a share price of $190-odd. Today, the market cap has slipped to around $80 billion even when it closed in 2021 at more than $267 billion.

What Netflix plans to do to arrest the downtrend?

During company’s earnings call in April, Netflix's co-CEO Reed Hastings said that the streaming giant was exploring lower-priced, ad-supported tiers in a bid to bring new subscribers after years of resisting ads on the platform.

“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription,” Hastings said during the call.

“But as much as I am a fan of that, I am a bigger 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," he added.

However, the cheaper option would likely not be available on the service for a year or two.

Further, the company is also working to crack down on rampant password sharing as well.

According to Netflix, in addition to its around 222 million paying households, over 100 million households use its service through account sharing.

Earlier this year, Netflix began testing different methods to curb password sharing in Chile, Costa Rica and Peru.

The company could expand the model it laid out in those countries, charging extra to accounts that share passwords out of home.

A concrete global strategy to tackle account sharing is yet to be outlined by the company but global changes are likely to come as early as 2023.

Also Read: Could Netflix Go Below The $100 Mark Before 2022 End?