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Netflix stock falls as company predicts slower growth

Ryan Reynolds and Dwayne Johnson in Red Notice

Netflix stock dropped by 20 percent after the California-based company revealed it expects growth to slow in early 2022.

The company, which has its headquarters in Los Gatos, added 8.3 million subscribers in the fourth quarter of 2021, which has raised its subscriber base to 222 million.

However, the company revealed on Thursday, January 20, it is expecting slower growth in the first quarter of 2022.

Netflix, which employs 9,400 people, forecasts 2.5 million new users in the first quarter of 2022, compared to 4 million in the same quarter of 2021.

Speaking during an investor conference call on January 20, the Los Gatos-based company's co-chief executive Reed Hastings said: "We are staying calm and trying to figure it out.

He added: “It could well be Covid effects. It could be we are pushing on a smaller market than we thought. But I’m not sure why.

The rise of Disney+ and HBO Max has meant more competition for Netflix, with Warner Media announcing it had grown to 73.8 million customers by the end of 2021.

The New York Times reports that Mr Hastings said: "There’s more competition than there’s ever been but, you know, we’ve had Hulu and Amazon for 14 years, so it doesn’t feel like any qualitative change there.”

Netflix announced last week it was increasing prices for its basic service up to $9.99 a month and the standard plan to $15.49.

Berna Barshay, an analyst with Empire Financial Research, said the changes could mean higher revenue but fewer customers.

She said: "I do think that they have permission to take this price increase.

“At $15.49 they are only 49 cents above HBO Max.

"There’s no reason they shouldn’t be the leader.

"Their quality at the top end is as good as anybody’s, and their quantity just outdoes anybody.”

New releases are on the way

Netflix said one reason for the prediction was the fact many of its new releases, including the second season of Bridgerton and Ryan Reynolds' The Adam Project are set for the later part of the first quarter.

The films Red Notice and Don't Look Up made for some strong Netflix content at the end of 2021, which was a big factor in the fourth-quarter growth.

Ted Sarandos, Netflix’s other co-chief executive, was more upbeat.

He said: "What’s really been great about 2021, even through all those conditions, is we were able to prove two theses that we bet on years ago,”

“One big one is around our investment in international programming.”

The company, based in Los Gatos, made $607 million in profit on $7.7 billion in fourth-quarter sales.

Investors had been expecting $379 million in profit and $7.7 billion in revenue, according to S&P Capital IQ.

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