Netflix saw a precipitous drop in its share prices after the company announced that it didn’t meet its target for subscriber growth in the previous quarter. The company added 8.3 million subscribers in the previous quarter, while it had set prior guidance of 8.5 million subscribers for the same time period. This was the slowest growth in that period for Netflix since 2015.

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But this may not be just a one-off occurrence. The company in its latest guidance, announced with its latest earnings, has said that it is looking at adding just 2.5 million subscribers in Q1 2022. The company had added 3.98 million subscribers in Q1 2021.

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"We delivered 8.3 million paid net adds. So it was just a bit shy about tenth of a per cent of roughly 222 million paying members," said Netflix Co-founder and Chairman Reed Hastings during an earnings call.

It is "definitely frustrating for us, the current slower growth", he added.

Why is subscriber growth slowing?

Netflix’s subscriber growth slowdown can be attributed to two major factors. The company itself has blamed the global macro-economic conditions in several areas of the world, which were affected by the resurgent wave of the COVID-19 pandemic. Regions like Latin America, contribute to a significant share of new users for the streaming platform.

But at the same time, the company has been witnessing slower growth in some of its more dominant markets. Netflix saw slower subscriber growth for Canada and the US, where it increased the prices for its plans to offset the changing dynamic.

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The reason behind this slowdown in such markets has been the increasing competition that the world’s biggest streaming platform has been facing. Services like Disney+, WarnerMedia’s HBO Max, ViacomCBS’s Paramount+ and NBCUniversal’s Peacock are already beginning to cut into Netflix’s subscribers count, while smaller, regional platforms are also cutting into potential foreign markets.

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The company quietly acknowledged the competition in a letter to its shareholders.

“While this added competition may be affecting our marginal growth some…,” the letter read.

The small and easily overlooked admission is the first time that Netflix has admitted that it is facing competition from other platforms.

What’s in store?

While subscriber growth may be slowing, Netflix had cautioned investors earlier that it is not likely to sustain its previous levels of growth forever. At the same time, the company has complete confidence in its future prospects and business model.

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Netflix still only commands just a tiny fraction of the US television audience and revenue has been increasing. The output of hit shows like Squid Game, Red Notice and Money Heist, also shows that the content library on the platform remains the best in the segment.

"It's a dynamic market for sure, it may not be as steady as people think about it in terms of we're gonna add X number every quarter, every month, every week, but there's no question that's the direction the business is going in," said Co-CEO Ted Sarandos.

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(Edited by : Shoma Bhattacharjee)