Netflix stunned the investment world when it announced its first-quarter 2022 earnings on 4/19/22 and reported that it lost about 200,000 subscribers. This sent Netflix’s stock plunging 35% on the following day, according to a Forbes article. The Netflix news came about six weeks after an article in “The Atlantic” predicted that subscriptions had peaked. Have we reached peak subscriptions? Is the Netflix news signaling the demise of the subscription economy?
We believe the answer is no.
Companies Doing a Good Job Retaining Subscribers
Churn is the rate at which customers stop doing business with a company. It is calculated by comparing the number of lost customers to the total number of customers at the start of the period.
During 2021, the churn rate for the Subscription Economy Index declined to 5.4% from 6.3% during 2020. The churn rate is actually lower than the 6.1% and 6.5% rates registered in the pre-pandemic years of 2018 and 2019. This implies that, on the whole, companies that offer subscription services are retaining their customers, not losing them.
While the pandemic was raging and lockdowns were widespread, subscriptions, particularly for services such as video streaming, digital news and media, and e-learning, surged. So, it should not be a surprise that as infections have waned in number and intensity, and the economy has opened up, there would be some slowdown in growth in these areas.
Netflix Had Company-Specific Issues
Netflix’s earnings should not be used to interpolate overall subscription trends as it was affected by some company-specific issues.
Netflix Argues for Portfolio Approach
The decline in Netflix stock highlights the potential wisdom in holding a portfolio of stocks that are part of the subscription economy. Company-specific issues may affect stocks from time to time, but overall, we believe that subscription economy stocks represent an attractive investment opportunity.
The Fount Subscription Economy ETF (SUBS)
The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Fount Subscription Economy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.
SUBS may invest in companies that offer subscription-based pricing models, including those in the technology hardware industry.
For a list of fund holdings, please click here.
 Team, Trefis, Is Netflix Stock’s Post Earnings Sell Off An Opportunity to Buy?, Forbes, 4/22/22
 Mull Amanda, This is Peak Subscription, The Atlantic, 3/3/22
 The Subscription Economy Index, Zuora, February 2022; The Subscription Economy Index is designed to measure the growth in the volume of business for subscription-based products and services.
 Forbes, 4/22/22
 Adalian, Josef, Netflix’s Bad Habits Have Caught Up With It, Vulture, 4/21/22
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 855-425-7426 or visit our website at www.fountetfs.com. Read the prospectus or summary prospectus carefully before investing.
Exchange Traded Concepts, LLC. serves as the investment advisor to the Funds. The Funds are distributed by SEI Investments Distribution Co., (SIDCO) 1 Freedom Valley Drive, Oaks, PA 19456. SIDCO is not affiliated with Exchange Traded Concepts, LLC. or Fount Investment Co. Ltd.
Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. The Funds’ concentration in an industry or sector can increase the impact of, and potential losses associated with, the risks from investing in those industries/sectors. The Funds are non-diversified. The Funds are new and have limited operating histories for investors to evaluate. New and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility.