By now, chances are you’ve watched every drama series and every movie you cared to watch on Netflix and you’ve been forced to become a foreign film connoisseur – might as well just slap on a beret and put out a bottle of Chablis and complete the look.
With entertainment options outside the box running so thin, it was bound to happen at some stage – Netflix fatigue.
And what’s hit our screens hard has hit Netflix’s stock even harder as the pandemic, which delivered record growth to the streaming service last year, is now being blamed for its worst quarter in almost a decade.
Netflix added far fewer customers than Wall Street had anticipated in the first three months of 2021, adding 3.98 million subscribers versus the average analyst estimate of 6.29 million and its own internal forecast of 6 million.
The current quarter is not expected to bring any joy either, with Netflix predicting a gain of just 1 million new subscribers, a sliver of the 4.44 million projected by analysts, after warning for months that user growth would slow after customers emerged from their coronavirus cocoons.
But Netflix’s problems aren’t just on the pandemic front, they’re also on the content front.
The pandemic delayed many productions and content has always been produced at a far slower pace than it was being consumed, a perennial concern for Netflix, but one that is now coming into sharp focus.
And as Netflix hoovered up fresh new subscriptions, it also reduced the size of the addressable market, with censorship preventing the streaming service from entering perhaps the most crucial market of all – China.
With a presence in over 190 countries, the years ahead will be hard for Netflix as there are fewer untapped markets, and with competitors nipping at its heels.
From Disney+ to YouTube, there is no shortage of alternatives for Netflix and there are yet services like HBO Max and Peacock which don’t yet compete with Netflix in many parts of the world, with these competing offerings cheaper.
And while production has resumed in most parts of the world, this won’t help Netflix in a meaningful way until later this year.
Netflix’s solution to the slowing growth has been the one they’ve adopted all along, throw money at the problem and hope that something sticks.
The streaming service plans to spend a whopping US$17 billion in cash on programming this year, up 36% from a year earlier, and is prioritizing investments in shows outside the U.S. where most of its customers live.
Europe continues to be a bright spot for Netflix, with the streaming service adding some 1.81 million customers across the continent.
And with Europe still struggling with the pandemic, subscriber growth in the Old Country should still help Netflix along for some time, but will not be enough to make up for the slowdown in the U.S. and other key markets.
That having been said, Netflix has plenty of cash.
With a net income of US$1.71 billion, Netflix generated a free cash flow of US$692 million over the past quarter, but some of that reflects a slowdown in production with lowered expenditure in those areas.
Balance sheet wise, Netflix is far healthier than it’s ever been, no longer needing to raise outside financing to fund its day-to-day operations, the company plans to reduce debt and will buy back up to US$5 billion worth of shares.
The signs seem to suggest that Netflix is an increasingly mature business, meaning that for investors, the years of supernormal growth may be behind it, with analysts likely to examine its financials more closely moving forward.
Netflix may also need to venture outwards into new businesses which are unfamiliar territory for it, including consumer businesses and video games, areas where incumbents and competition won’t give it an easy time.
One possibility of course is that Netflix launches its own streaming service for gamers, akin to what’s found on YouTube, Twitch and Facebook Gaming.