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"We would remain on the sidelines until there is evidence that Netflix is a growth company once more," Pachter wrote, reiterating Wedbush's "neutral" rating and lowering the price target from $342 to $280 per share.
Netflix's moves to monetize password-sharers and roll out an ad-supported tier are unlikely to produce meaningful changes for its U.S. business in the near term, according to Neil Macker, senior equity analyst at Morningstar. The firm lowered its price target on Netflix shares from $305 to $280 per share, citing expectations for much lower subscriber growth in 2022 and slower margin expansion.
Previously, Netflix had not reported a drop in subscribers since the third quarter of 2011, which came after it split its DVD-by-mail and streaming services. The company's stock had previously had its biggest one-day percentage stock drop on Oct. 25, 2011, when shares fell 34.9% after Netflix reported a net loss of 800,000 customers.
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Shares of Netflix (NFLX 2.13%) fell 12.9% last month, according to data from S&P Global Market Intelligence. Investors in the leading streaming video service had their nerves rattled by comments a company executive made at a media industry conference.
Speaking at the Bank of America Media, Communications, and Entertainment conference on Sept. 13, Netflix CFO Spencer Neumann attempted to address several pain points. Some of his answers left investors less than satisfied, and his reluctance to give detailed responses to other queries didn't exactly boost Wall Street's confidence, either.
This presentation took place near the closing bell on Wednesday, Sept. 13. By Thursday's market close, Netflix's stock had fallen by a total of 7.9% in two days. After that, the stock's decline continued at a slower pace through the rest of the month, largely undisturbed by any news of game-changing importance.
Netflix has given investors a lot to worry about in recent years. Yesteryear's extreme subscriber growth has been exchanged for a focus on slower but more profitable growth. An ad-supported version of the service used to be an idea management refused to even consider; now, it represents the company's strongest tool for reaching price-sensitive consumers. And the streaming market is teeming with competitors. So it makes sense that some nervous investors will reach for the "sell" button at the slightest suggestion of further challenges.
On the other hand, these concerns are already priced into Netflix stock. The stock currently trades more than 46% below the all-time high it set in November 2021, and at a reasonable valuation of 24 times forward sales projections.
In other words, this robust growth stock looks undervalued, and last month's big price drop opened the buying window a little bit wider. If you're looking for the best ways to invest in next-generation entertainment stocks, Netflix should be near the top of your list for further research.
The streaming service shocked Wall Street by losing 200,000 customers in the first quarter, the first time it has shed subscribers since 2011. It also projected it will shrink by another 2 million customers in the second quarter.
The drop in customers has led Netflix to break some of its long-standing rules: it will introduce a cheaper, advertising-supported option for subscribers in the next couple years and will start to crack down on people sharing their passwords even before that.
Fellow stay-at-home stocks, including Etsy Inc., Zoom Video Communications Inc. and DocuSign Inc. have also been hit by deep losses, down by 38% to 51% in 2022, as these businesses struggle to leverage the inroads they made during lockdowns.
Now, even Wall Street bulls are flipping sides after Netflix missed even the most-bearish forecasts, not just once, but twice in a row. Analysts across Wall Street reduced their price targets for the streaming-video company, while at least nine brokerages downgraded the stock.
April 20, 2022 premarket reports have investors and market watchers wondering why Netflix stock is plummeting. The company will be devalued by approximately $40 billion if this drop holds when the market opens.
Finally, the prevalence of consumers sharing their passwords came up as a concern. The company stated they had strategies they were going to implement to handle this without hindering user experience.
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The company's customer base fell by 200,000 subscribers during the January-March period, the company disclosed Tuesday in releasing its latest earnings report. Netflix's stock price plunged more than 37% to $219.50 in early trading on Wednesday as investors fretted about the company's slowing growth and mounting competition.
The decline in subscribers is the first since Netflix became available throughout most of the world outside of China six years ago. The drop this year stemmed in part from Netflix's decision to withdraw from Russia to protest the war against Ukraine, resulting in a loss of 700,000 subscribers.
The company reported revenue of nearly $7.9 billion in the period, falling slightly short of Wall Street forecasts. For the current quarter ending in July, Netflix said it expects revenue of just over $8 billion. Analysts surveyed by Zacks had expected revenue of $8.2 billion.
Netflix also lost 800,000 subscribers in 2011 after it unveiled plans to begin charging separately for its then-nascent streaming service, which had been bundled for free with its traditional DVD-by-mail service. The customer backlash to that move elicited an apology from Netflix CEO Reed Hastings for botching the execution of the spin-off.
But the latest subscriber loss was far worse than a forecast by Netflix management for a conservative gain of 2.5 million subscribers. The news deepens troubles that have been mounting for the streaming since a surge of signups from a captive audience during the pandemic began to slow.
The streaming industry "is more saturated and filled with a multitude of services offering compelling content at prices lower than NFLX's, including mega-tech platforms with deep pockets," Oppenheimer analysts wrote in a note.
It marks the fourth time in the last five quarters that Netflix's subscriber growth has fallen below the gains of the previous year. Now investors fear that its streaming service may be mired in a malaise as it faces stiffening competition from well-funded rivals such as Apple and Walt Disney.
"Netflix is still the single most dominant player in the streaming industry, especially in demand for original content," noted Parrot Analytics, a company that analyzes streaming content, in an email. "But as several nearly century-old firms erode the incumbent's market share, Netflix is reaching a point where it needs to focus more on subscriber retention, especially in North America, while its legacy media-backed competitors Disney+ and HBO Max continue focusing on subscriber growth in key international territories."
Last year, Netflix had its weakest annual gain since 2016, adding 18.2 million subscribers. That contrasted with an increase of 36 million subscribers during 2020 when people were corralled at home and starved for entertainment, which Netflix was able to quickly and easily provide with its stockpile of original programming.
Netflix has previously predicted that it will regain its momentum, but is now starting to acknowledge that it's mired in a serious malaise that requires action. Among other things, Netflix signaled that it will likely crack down on the sharing of subscriber passwords that has enabled multiple households to access its service from a single account.
With the pandemic easing, people have been finding other things to do, and other video streaming services are working hard to lure new viewers with their own award-winning programming. Apple, for instance, held the exclusive streaming rights to "CODA," which eclipsed Netflix's "Power of The Dog," among other movies, to win Best Picture at last month's Academy Awards.
Jonathan Friedland, the new vice president of global corporate communications who had joined Netflix just a few months earlier, asked whether customers on tight incomes might object to the price hike, according to people at Hastings' meeting. Hastings argued that Netflix was a great bargain. He said he knew that some customers would complain but that the number would be small and the anger would quickly fade.
Hastings was wrong. The price hike and the later, aborted attempt to spin off the company's DVD operations enraged Netflix customers. The company lost 800,000 subscribers, its stock price dropped 77 percent in four months, and management's reputation was battered. Hastings went from Fortune magazine's Businessperson of the Year to the target of Saturday Night Live satire.
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