Anthony Bartolacci, VP of Financial Institutions at Sensor Tower, breaks down the reasons investors remain concerned about Netflix after the streaming giant said it lost subscribers last quarter.

Closing Bell

Netflix Loses Over One-Third of Market Value in One Trading Session

Netflix remains a big story today after reporting a subscriber loss in its latest quarter for the first time in more than 10 years, the streaming giant is also considering adding a new, lower cost ad supported plan in order to potentially attract more customers. Co ceo reed Hastings admitted that he has been opposed to the move but acknowledged that given consumers a choice is more important to him. Netflix is also looking to cut down on password sharing, joining us now, Anthony Bartolucci, vice president of financial institutions at sensor tower market intelligence and performance metrics platform in the mobile app ecosystem. Welcome to the show. So what do you believe is contributing most to netflix's recent subscriber loss? Yeah, Hi Hannah, thanks so much for having me. So I think when you're looking at netflix's performance over the last quarter and even going back a couple of quarters prior, the biggest headwind that I'm seeing at sensor tower is competition. And I think when you look at developed markets, there are more and more options in the streaming space, both well known options and more localized options. And I think a related issue to just simply more platforms is a consumer quest for new and better content. And I think what, what we saw in the first quarter was netflix had fewer tent pole pieces of content, particularly in the US. And I think when you contrast it with the service like HBO max which seems to had more shows and movies that were part of popular culture. You see, you see some swings and subscribers, you see fewer inflection point days. and I think that's contributing to to some of the weakness with netflix and I think you know, another thing that's obvious to point out that netflix is so big um it has fewer places to go, whereas an HBO max has a lot of room to grow because of its low base. So let's talk about the results just over the past year, we have a graphic just to show our viewers, Anthony you can see in April of 2018 it was trading just above $300, topped $500 the same time last year, Looking at the price today, it's in the neighborhood of $220, Netflix has lost more than a third of its market cap today. Do you think it will continue to struggle on Wall Street as we move forward? Yeah, I mean that's a great question and at sensor tower, our expertise is really in the data on the mobile app side. But when I look at netflix's performance as a streaming application, I do think there are some positives despite the weakness and subscriber number when we look at our data set, it is many times over larger than its competitors in most uh most developed markets. And even when we sort of peel back the data center tower has really wonderful device level data. We're seeing users using netflix more frequently than some of its um streaming competitors. So there is some stickiness there with their user base, but um, you know, I think the headwinds from not just competitive pressures, but a lot of services seeing pronounced growth during the covid early covid reaction and that sort of normalized as people have returned to their normal lives. I think things are just settling a little bit, but, but in my advantage point, I don't think this is nearly, you know, the end of a netflix story and I think there's a lot of optionality going forward. So to that point, what do you think netflix needs to do at least in the short term to regain the investor sentiment that we've been seeing for years now. Sure. One thing that we've seen to some success with competing streaming platforms is the integration of live sports and I think a good example is with Disney Plus in international markets. Disney Plus partners with other providers that have access to live sports. That that are correct for the the applicable market. One example is in India, its partnership with Hot Star, they have live cricket matches and when the cricket season is beginning and when there's events in the cricket calendar, you see spikes in the data set. I think netflix could borrow a page from their playbook and even amazon prime's upcoming partnership with the NFL and have more live sports and I think that could provide a high base of subscribers and then also give netflix exposure to those material events. Another thing that it's trying which is right in the center tower wheelhouse is moving its I. P. Towards mobile games and I think there is a pretty obvious link between people being on their mobile device, watching streaming content and then flipping over to a game and realizing you know the Stranger Things series I just watched on netflix has a cool mobile game component that I can also enjoy on the same device. It's really early innings for Netflix as a publisher of mobile titles. It just passed the 10 million installed threshold revenue is not material yet and it's probably a longer term play. But it's an interesting avenue for netflix to go down. Another aspect that we've been discussing a lot is netflix looking to reduce password sharing. We actually took a poll here Anthony at cheddar news here is what we learned. A majority of people, 56% say they do not share their password with others. I don't know if I believe that but do you believe Netflix has a valid point in regards to password sharing or is the company simply looking for something to blame here? Yeah and that's a great pole and I I can't attest the veracity of those results. Um But but I think it's an issue but perhaps one that isn't accelerating and what I mean by that is when I look at the center Tower data and our estimates of mobile active users there are times when it surpasses the total number of subscribers and there could be some noise in that. But to me it probably means more people are accessing the netflix platform that have actually subscribed, but I don't see any evidence that this is something that's picked up in the last quarter or two quarters. So it's all, there's always probably been a baked in number of people who are using netflix through somebody's password. I think the question that netflix needs to figure out is is it worth tightening those restrictions on password sharing at the potential of turning off subscribers who maybe had two or three people splitting the monthly cost. And that probably dovetails into the argument, does netflix increased its subscription costs? Do they supplement their existing price levels with a lower cost or ad supported price level? I think there's a lot of ways they could go to maximize that number. The question is, are people paying the right amount for the level of access to receiving? Netflix says it expects to lose another $2 million dollars in the current quarter. Do you think these customers will actually maybe come back or are we at such a saturated market now that it's kind of in the unknown? I think they'll definitely come back and and and one thing that, you know, I alluded to earlier is content being a big driver for people subscribing to these services. We saw very clearly in the Center Tower data last fall that there was a material uptick during the time squid games was released, squid games was an incredibly popular series, Korean series that resonated well with Asian and American audiences. We saw engagement up 10-15% during the weeks after its release. Then things normalized again. Um, but if netflix can tap into more of those shows that are part of the culture and and water cooler talk and things that people are talking about I think it absolutely can can sort of bring back some of those yo yos subscribers who maybe rotate their streaming budget amongst whatever platform has the best movies or the coolest shows on any at any given time. A moment ago we talked about netflix possibly get, get going into not possibly going into the gaming space. Do you think this is something investors will also be interested in? I think so, um, you know, if you, you know, the last quarter or so has been huge in terms of gaming m and A and I think there's a lot of attention being paid to mobile games. Um, not just Microsoft acquisition of acquisition of Activision Take Two in Zynga's partnership. I think people realize that mobile games is a really significant business. I mean it's 90 billion and growing in terms of consumer spend. So this is definitely an area that people should keep their eyes on. But I think with netflix, they're only sort of scratching the surface of what they can do. You know they're leveraging existing I. P. Into mobile games. I think there's a really interesting runway there when you see synergies between the content on the primary video streaming app and then mobile games, you know pathways where you can advertise back to one another. I think all that is in front of Netflix. The question is is it so long of a term play that it's not something that's going to be a short term um sort of siege for any lost streaming video subscribers. Last question pulling out of Russia alone cost the company about 700,000 subscribers. But even with that the company still would have missed its own expectation of nearly two million. Do you think that played a major factor here? Yeah, I mean you know we we saw they were down 200,000 subscribers. Russia accounted for 700,000 of it. So there's still a pretty big delta, their U. S. And Canada was down 600,000. Which I think you can attribute to competitive forces maybe a return to normalcy post Covid, we also saw weakness in latin and that has been a key market for netflix and one that HBO max has entered um an interesting thing in the center Tower data is this was the first quarter one Q 2022 where HBO max surpassed netflix in terms of new installs. HBO max is a more competitive pricing scheme in latin America and you know that could contribute to the reason why users there are shifting to a different streaming platform. A pack was good for netflix, but it was less good for netflix than it was for some of its peers, like the aforementioned Disney plus with some of its sports packages. Um, so I think um you know blaming it on Russia, it definitely exacerbated the issue, but there were weaknesses in all of its key markets. Anthony Barr Laci, vice president of financial Institution at sensor tower. Great information, great contacts, Anthony. Thank you. We hope you come back soon.