Netflix’s share price is having its worst day in approximately 18 years as its share price is down over 38% as of the time of this writing.
Since hitting an All-Time High (ATH) of $700.99 on the 17th of November, 2021, just a little over 5 months ago, the share price has been on a downtrend, which has seen it lose value of over 68.66%. The decline represents a wipe off of 4 years of gains made since January 2018.
As previously reported by Nairametrics, the reason for this parabolic decline in its share price is as a result of the company announcing it lost approximately 200,000 subscribers in the first quarter of 2022. Netflix has not lost subscribers in a quarter in over a decade.
The company blamed the decline on stiffer competition, inability to expand in some territories due to technological limitations and account sharing. It also blamed inflation and the war in Ukraine as part of the reasons for the loss of its subscribers.
What they are saying
Kim Forrest, chief investment officer at Bokeh Capital Partners stated, “Netflix is a poster child for what happens to growth companies when they lose their growth. People buy growth companies because they think their cash flow is going to grow so they’re paying ahead for anticipating that. When a stock like this tumbles, people looking for growth back away quickly.”
J.P. Morgan made the most aggressive move by halving its price target to $305 – well below the stock’s median Wall Street target of $400. J.P. Morgan analyst Doug Anmuth stated, “Near-term visibility is limited … and there’s not much to get excited about over the next few months beyond the new, much lower stock price.” Anmuth also slashed his estimate for 2022 net subscriber additions by half to 8 million.
In an effort to calm nerves, company executives told analysts on Tuesday they were looking to offer an advertisement-based tier over the next year or two and promised a crackdown on password sharing – a long-running problem for the service. However, according to Russ Mould, investment director at AJ Bell, “We’ve got the full kitchen sink … That might not be enough.”
Piper Sandler analyst Thomas Champion said in a note that, “We’re left with a business in transition. Subscribers have slowed and we struggle to see a return to a pre-COVID net add cadence.”
Peter Garnry, head of equity strategy at Saxo Bank explained that Netflix’s bigger problem was consumers cancelling their subscription due to inflation and post-pandemic user fatigue, than its profitability or business model.
What you should know
- Netflix explained that they expect to lose another 2 million subscribers in the second quarter of 2022. They further explained that the loss in subscribers meant that 222 million households are paying for Netflix, but over 100 million more are sharing those accounts, who are not paying for its services.
- Despite the decline in subscribers, Netflix’s first-quarter revenue grew approximately 10% to $7.87 billion compared to the first quarter of 2021 where it generated $7.16 billion and added 3.98 million paid subscribers.
- Despite the increase in revenue, the firm’s net income declined in Q1 2021 by 6.44%, from $1.71 billion in Q1 2021 to $1.59 billion in Q2 2022. This was majorly attributable to decline in interest and other income by 27.29%
As of the time of this writing, Netflix is now down 63% Year-to-Date (YtD), with its market capitalization falling below the $100 billion mark, to currently stand at $97.58 billion.