Your Netflix bill just went up — now your Netflix stock is going down

Posted: 24 January 2022 11:09 am

Shares dropped more than 20% on news of slowing subscriber growth.

Netflix’s (NFLX) earnings report has investors running from the stock. The streaming giant reported fourth-quarter 2021 earnings after the bell on Thursday, beating on profits and posting revenue in line with Wall Street expectations. Netflix booked revenue of $7.7 billion for the quarter, matching the $7.7 billion analysts were expecting, according to Yahoo Finance. The company saw earnings climb 12% year over year to $1.33 per share, beating analyst estimates of $0.82. Last week, Netflix raised its prices in the US and Canada, which gave the stock a 4% pop during trading on Friday. The monthly cost for the basic plan rose $1 to $9.99, the standard plan increased from $13.99 to $15.49 and the premium plan rose from $17.99 to $19.99, according to Netflix’s website.

So what happened?

Shares plunged more than 20% after hours Thursday and continued to fall Friday, reaching its lowest levels since April 2020, thanks to slowing subscriber growth.
Netflix added 8.3 million subscribers in the fourth quarter, short of the 8.5 million new subscribers the company projected for the quarter and posted in the same quarter last year. For the full year, Netflix added 18 million subscribers, compared to 37 million in 2020.
Further, Netflix expects to add 2.5 million subscribers during the first quarter of 2022, far below the 4 million it added in the first quarter of 2021. The company pointed to increased competition from other companies as one reason for the slowdown, acknowledging for the first time that other streaming services are beginning to hurt its market share. It also sees “ongoing COVID overhang” as a reason that its acquisition growth has not yet re-accelerated to pre-COVID levels.
“Consumers have always had many choices when it comes to their entertainment time — competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering,” Netflix said. “While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched.”
In its quarterly shareholder letter accompanying its first-quarter 2019 earnings report, however, Netflix said companies like Apple and Disney wouldn’t materially affect its growth.

What’s ahead for investors?

Netflix stock has been one of the biggest growth stories of the decade. It was under $10 as recently as 2012 and is up over 200% in just the last five years. But it’s now down 43% from its 52-week high of $700.99. It certainly looks like a lot of investors have decided to take profits.
Price increases should help offset waning customer growth, and the company is also pushing into gaming — an industry that’s been in the spotlight recently amid surging popularity. Netflix has been releasing mobile games based on its popular titles to its subscribers since November 2021, but just how far the company pushes into what some estimates say will be a $314 billion market by 2027 remains to be seen.
But Friday saw a flurry of analyst downgrades after the streaming giant gave an outlook for waning subscriber additions. Of the 41 analysts covering the stock, 25 have rated it a Buy or Strong Buy and 14 gave it a Hold, versus just one Underperform and one Sell, according to Yahoo Finance. The stock has an average 12-month price target of $663.12, a 67% premium over its current price.
Shares of Netflix closed Friday at $397.50, down 22% for the day.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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