Shares of Netflix lost more than a quarter of their value on Wednesday after it reported its first drop in subscribers in a decade, leaving Wall Street to question its growth in the face of fierce competition and viewer fatigue after the pandemic.
Shares of the streaming pioneer plunged nearly 37% to $220.29 and were on track to post their worst day in a decade. At least a dozen analysts were quick to temper their views on a stock that has been an outstanding performer in recent years.
“Netflix is an example of what happens to growth companies when they lose their growth,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.
“People buy growth companies because they think their cash flow is going to grow, so they pay up front to anticipate that. When a stock like this falls, people looking for growth quickly pull out,” he added.
JPMorgan bank was the most aggressive in halving its price target to $305, well below Wall Street’s median target of $400. “Short-term visibility is limited … and there is not much to get excited about in the coming months beyond the new, much lower share price,” said JP Morgan analyst Doug Anmuth.
Anmuth also cut his estimate for the number of net subscribers in 2022 in half, to 8 million.
The plunge in shares could erase the gain of the past two years, when his business boomed as new customers joined his platform to weather lockdowns.
In an effort to calm nerves, Netflix executives told analysts on Tuesday that they were looking into offering an ad-supported service for the next year or two and vowed to crack down on password sharing, a long-standing problem for Netflix. service.
Netflix’s rivals already have ad-supported versions or are considering one: HBO Max offers an ad-supported subscription, while Disney+ recently said it would launch an ad-supported service.
The demand for fresh and engaging content is also on the rise, forcing Netflix and others to consider bigger budgets for production, even as costs rise in an inflationary environment.
“Netflix’s profitability or business model is not the issue, as the numbers show, but rather that some consumers may be canceling due to inflation and post-pandemic user fatigue,” said Peter Garnry, head of Saxo Bank’s equity strategy.
For the second quarter, Netflix has prepared new seasons of the popular series “Ozark”, “Stranger Things” and “Grace and Frankie”.
Needham, however, took a different view. The brokerage has upgraded its rating on the stock to “hold” from “underperforming,” encouraged by the company’s plans to add a low-priced ad-supported service.