Chapter 1: Netflix's $50 Billion Day

Experiencing a major setback is never pleasant, especially for a company that has inspired countless others. However, it can be an opportunity for learning.

To illustrate, if you had invested $10,000 in Netflix back in 2018, it would have grown to $16,650 just two days ago. Presently, that investment is worth only $10,380. Netflix has always embodied the spirit of a startup, serving as a beacon for many and inspiring millions during its rise, particularly through its transition from DVDs to streaming services.

They famously resisted an acquisition attempt from Jeff Bezos, saying, "Not today!" This day, however, marks their worst performance in nearly two decades. As Oscar Wilde aptly noted, "The truth is rarely pure and never simple."

While some stocks experience dramatic fluctuations—like Twitter's 25% surge due to Elon Musk's confidence or Meta's 26% drop after pivotal changes—Netflix's situation is different. They simply presented their earnings truthfully, as required by law.

As it was earnings season, let’s delve into the key takeaways from Netflix’s announcement.

Section 1.1: Understanding the Numbers

When discussing significant financial losses, a figure like 0.09% may seem negligible. If you have billions at stake, losing that percentage is unlikely to cause sleepless nights.

Netflix shared that it had lost 200,000 subscribers out of its total 214 million. The reaction from investors was immediate: "Did you say you lost subscribers?!"

In response, Netflix explained that the subscriber drop was primarily due to exiting the Russian market and rampant password sharing. When investors pressed for future growth, Netflix admitted they anticipated losing another 2 million subscribers in the upcoming quarter, prompting immediate concern.

Investor response: "calling assistant Get Disney on the line, NOW!!"

Netflix then revealed plans to introduce a more affordable ad-supported subscription tier, leading to a tense silence among investors.

Subsection 1.1.1: The Competitive Landscape

Chapter 2: Confronting Challenges

Netflix faced challenges not just from competition but also from external factors:

• Inflation: As living costs rise, entertainment often takes a backseat to essentials.
• Geopolitical Issues: The war in Ukraine led to a loss of 700,000 accounts.
• Rising Competition: Once the sole leader, Netflix now faces fierce competition, with titles like Apple's "CODA" winning major awards.

Despite these setbacks, Netflix remains a dominant force in video streaming. They have weathered storms before and emerged stronger.

What might be on the horizon? They could tackle password sharing more aggressively by reducing the number of screens allowed per account or enforcing IP limitations. Industry estimates suggest that streaming services collectively lose around $25 billion annually due to password sharing, with Netflix representing about $6 billion of that. Given their $30 billion revenue in 2021, recapturing that revenue would be a significant boost.

While losing $50 billion in one day is daunting, it may not threaten CEO Reed Hastings' position—at least not imminently.