Netflix shares closed down more than 35% Wednesday after the streaming company reported earnings Tuesday night that showed it lost subscribers for the first time in more than 10 years. The poor results and outlook led to a wave of cutbacks from Wall Street due to concerns about the company’s long-term growth potential.
The drop caused Netflix to slash more than $50 billion from its market value. It’s now the worst performing stock of 2022 in the S&P 500, down 62.5% year-to-date.
Netflix said several headwinds are affecting growth, including increased competition and the lifting of pandemic restrictions. The video-streaming business has benefited from requests to stay at home due to the coronavirus, with more people searching for digital entertainment. But in recent months, people have been spending less time on digital platforms as vaccines are introduced and mandates loosen.
Reed Hastings, founder of Netflix, speaks on stage at the 2019 New York Times Dealbook on November 6, 2019 in New York City.
Michael Cohen | Getty Images
Slower home broadband growth also played a role in the company’s poor outlook. Netflix has estimated that 100 million families share their subscription passwords with other family members or friends.
The company, in an effort to boost growth, said it was considering a lower price category supported by ads and suggested cracking down on password sharing. While analysts seemed generally optimistic about these changes, they noted that they were not a short-term solution to the subscriber base problem.
“While their plans to re-accelerate growth (limiting password sharing and advertising model) have advantages, they will not have a noticeable impact until 24, which is a long time to wait for what is now ‘show me a story,’” Bank of Analysts said. America in a note on Wednesday.The company was one of at least nine companies that downgraded Netflix in the disappointing report.
“After what can only be called a shocking first-quarter subscriber loss, weak subscriber and financial guidance, we have significantly lowered subscriber expectations and pared profitability forecasts,” pivotal analyst Jeffrey Wlodarczak wrote in a note on Tuesday. The company downgraded the stock to sell from buy.
Wells Fargo analysts wrote in a note Wednesday that downgrading the stock to equal weight that “negative sub-growth and investments to reaccelerate revenue are the nail in the NFLX narrative coffin, in our view.”
Shares of several streaming services covered Wednesday morning along with Netflix as investors await updates on their growth. Disney shares closed down 5.5 percent. Similarly, Roku shares closed more than 6% lower, Paramount shares fell 8.6%, and Warner Bros. Discovery shares fell nearly 6% on the day.
Wolfe Research said: “Overall activity continues to be softer than expected, as such, subscription companies could face similar pressures throughout this earnings season, although we note that NFLX is unique in that it is more penetrative, particularly when calculating Password sharing” in a note on Tuesday. The company maintained its superior rating.
—CNBC’s Michael Bloom contributed to this report.