Netflix's stock price continued its decline Wednesday after the company announced plans of launching a lower-priced subscription option that will contain ads. The stock dropped by more than 37% before recovering slightly, ending the trading day down 35.12%.
The company's CEO, Reed Hastings, said that the new subscription option is meant to offset its loss of subscribers over the past months. Netflix's subscriber numbers plummeted after the company raised prices and exited Russia.
Hastings said the company is still trying to figure out the best way to implement the new subscription tier, and it is open to lowering prices further depending on feedback from advertisers and customers. He added that even though he isn't a fan of the advertising business model, he is for consumer choice, and it would be best for customers to have a lower-priced option.
Hastings hinted that the new tier would likely be rolled out globally instead of launching pilot programs in select regions. He added that the business model already works at other streaming services such as Hulu and Disney, stating that there are no doubts that the system works.
In its first-quarter earnings report, Netflix said it lost more than 200,000 subscribers after it raised prices and then another 700,000 after it decided to leave Russia after it attacked Ukraine.
The loss of subscribers was the first time for the company in more than a decade. The announcement stunned Wall Street, sending Netflix's shares down by more than 25%, wiping off tens of billions in market capitalization. And this was after the company's shares had fallen by more than 40% over the past year.
Apart from its exit from Russia and higher prices, Netflix also blamed factors such as increased competition and widespread account password sharing. The company said it would be launching a new feature that would crack down on password sharing and make all users pay a fee for using other people's accounts.
Netflix currently charges between $9.99 to $19.99 per month for its subscription service. It isn't clear yet how much the company would be charging customers for ad-enabled subscriptions.
Separately, one of Netflix's largest shareholders just sold its entire stake in the company. Bill Ackman's Pershing Square Holdings announced that it had sold its shares in the company, explaining that it had "lost confidence" in its ability to accurately predict the company's future prospects. Ackman's company previously bought more than 3.1 million shares of Netflix in January, making it one of the company's top-20 shareholders.