Netflix’s stock fell 36% on Wednesday after the streaming service published earnings on Tuesday evening that revealed it had lost members for the first time in over a decade. The company’s long-term growth potential was feared as a result of the results and lacklustre forecast, which prompted a wave of downgrades on Wall Street.
Netflix’s market cap was reduced by about $56 billion as a result of the decline.
Increasing competition and the loosening of pandemic restrictions, according to Netflix, are impacting growth. Coronavirus-related stay-at-home orders boosted the video streamer’s profitability, as more customers turned to digital entertainment. However, once vaccines became available and restrictions were relaxed, people began to spend less time on internet networks.
The company’s dismal projection was influenced by slower household broadband growth. According to Netflix, 100 million households share their subscription credentials with relatives or acquaintances.
In an effort to stimulate growth, the company said it’s investigating a lower-cost ad-supported tier and hinted at a password-sharing crackdown in the near future. While analysts were generally positive about the revisions, they cautioned that they were not a quick fix for the subscriber base issue.
“While their plans to reaccelerate growth (limited password sharing and implementing an ad model) have merit, they won’t have a visible impact until ’24,’ a long time to wait on what is now a’show me tale,'” Bank of America analysts wrote in a note on Wednesday. Netflix was downgraded by at least nine firms in response to the negative report.
“We cut our subscriber projections and pushed back our profitability forecasts substantially after what can only be described as a catastrophic 1Q subscriber shortfall and dismal subscriber & financial outlook,” Pivotal analyst Jeffrey Wlodarczak wrote in a note on Tuesday. The stock has been lowered from a buy to a sell.
“Negative subgrowth and investments to reaccelerate revenues are the nail in the coffin of the NFLX story, in our opinion,” Wells Fargo analysts wrote in a note downgrading the stock to equal weight on Wednesday.
As investors wait for information on their growth, several streaming services’ stocks, including Netflix’s, took a dive Wednesday morning. Following the opening bell on Wednesday, Disney’s stock was down roughly 5%. Roku stock was down over 7%, Paramount stock was down 12%, and Warner Bros. Discovery was down nearly 5%.
“Gross adds activity continues to be weaker than expected, as a result, subscription companies may face similar pressures this earnings season,” Wolfe Research said in a note on Tuesday. “However, we note NFLX is unique in that it is much more penetrated, particularly when accounting for password sharing.” The stock’s outperform rating remained unchanged.