Netflix stock plunges 35% after first-quarter subscriber loss
Netflix shares on Wednesday plunged 35.1%, a day after the company revealed it lost 200,000 subscribers in the first quarter.
The drop in the share price to $226.19 at the close of trading was the steepest in a decade for Netflix.
The last time the company had such a large decline in a single day was on Oct. 11, 2011, when the stock dropped 34.9%, according to FactSet. The biggest one-day price decline was on Oct. 15, 2004, when shares plummeted 41%, FactSet said.
Investors previously had been bullish on Netflix because of its position as a streaming giant and its unprecedented growth during the pandemic, as people looked for ways to entertain themselves at home. But as competition has increased, that has put more pressure on Netflix to continue to ramp up its subscriber base. Instead, Netflix lost subscribers in the first quarter and anticipates it will lose 2 million in the second quarter.
Netflix cited several reasons for the subscriber loss, including rising competition and password sharing. Executives said they would consider a lower-priced option with ads.
Now, some analysts are questioning how large the streaming market is and whether Netflix’s initiatives to add more subscribers will work.
“It definitely suggests that there is concern within the industry about how sustainable the current situation is ... and whether we need to kind of move towards a different model,” said Francesca Gregory, an analyst at GlobalData.
Several analysts cut their price targets for the stock significantly. Kenneth Leon, research director at CFRA Research, slashed his target price for Netflix stock to $290 a share, down from the previous target of $525 a share, and moved the firm’s recommendation to “hold” from “buy.”
“With NFLX subscriber growth coming to a stop with 222m paid members, NFLX shares are likely to come under greater scrutiny about long-term growth,” Leon wrote in a note.
Research firm MoffettNathanson dropped its target price for Netflix by $105, to $245 a share, noting that this situation “feels different as the first quarter 2022 earnings release, investor letter and video interview portrayed a company that was more surprised by things and less clear than ever about the path forward.”
The report added: “Putting it all together, we have witnessed a company go from growth darling to growth purgatory in an instant.”
As popularity for the ad-supported Roku Channel has grown, San Jose-based Roku more than doubled its staff in Santa Monica last year.
To counteract the subscriber losses, Netflix executives said they would focus on continuing to put out compelling content, monetize the sharing of passwords and explore the possibility of adding a lower-priced subscription option with ads, a big shift in the company’s strategy.
Netflix’s competitors, including Hulu, already offer ad-supported plans. There has also been a surge in free, ad-supported streaming services over the years, including the Roku Channel.
Netflix, which has long been the dominant subscription streaming service, said a major challenge for its business is password sharing. On Tuesday, the company disclosed that it believes more than 100 million nonpaying households are accessing its service through password sharing, more than 30 million of which are in the U.S. and Canada.
Password piracy and account sharing is expected to cost streamers and pay TV providers $12.5 billion in 2024, according to Parks Associates.
There are also websites that allow people to illegally sell Netflix passwords for as little as $1.
The company has been testing ways to encourage nonpaying users to sign up for a subscription. In countries such as Chile and Costa Rica, subscribers can pay an extra $2 to $3 to add as many as two users outside of their household. Netflix’s terms require subscribers to live in the same home.
Netflix executives in an earnings presentation Tuesday tried to reassure investors that the company has a plan in place to address these issues.
“We’ve gone through a lot of changes, and we’ve always figured them out, one by one,” Netflix co-Chief Executive Reed Hastings said in an earnings presentation Tuesday. “We lead by a significant margin in streaming and streaming is continuing to grow around the world, so we have a bunch of opportunity to improve, but coming out the other side I’m pretty sure we’ll look at this as really foundational in our continued journey.”
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