Netflix has endured a tumultuous year after the company failed to produce enough titles in order to keep up with demand. There’s now talk of Netflix ending its streaming service, and what happens next will be interesting for investors who have been waiting on an event like this one for some time.
Netflix has been able to weather the storm of its competitors, but now faces a long intermission.
A scene from the Netflix original film ‘Russian Doll.’ Since its high in mid-November, Netflix’s stock has dropped around 67 percent of its market value.
Updated at 4:17 p.m. on April 20, 2022 ET
Netflix NFLX -35.12 percent was previously penalized by the markets for being too ahead of the curve. Falling behind now has the same penalty.
Following poor first-quarter earnings that featured the company’s first decrease in paying subscribers in more than a decade, the streaming giant’s stock price plummeted 35% on Wednesday. According to FactSet, this is the stock’s biggest one-day drop in over 18 years. Netflix has also lost about 67 percent of its market value since its high in mid-November, replicating the selloff that followed the notorious Qwikster fiasco in 2011, when Netflix revealed intentions to split its streaming service from a rebranded DVD-by-mail business. Netflix’s market value plummeted by 78 percent as a consequence of that proposal until the firm called it off late that year.
However, there are some significant variations to be aware of. The ten-year selloff mirrored concerns that Netflix management was behaving too hastily in racing into streaming, thus demoting the DVD business, which nevertheless accounted for the overwhelming majority of its income. However, the plan’s underlying logic eventually came to fruition. While DVD rentals are barely a footnote in the company’s financial records, Netflix is now the unchallenged leader of a streaming sector that other media and internet titans are pouring into. Netflix, on the other hand, seems to have slipped behind the curve this time, expressing real astonishment at its recent loss in subscribers and now altering its mind about password sharing and advertising.
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As a consequence, the corporation now seems to be scrambling to catch up. Almost all of Netflix’s streaming rivals either have or will soon have an ad-supported tier. On Netflix’s earnings conference late Tuesday, co-Chief Executive Reed Hastings stated that an ad-based product would likely “phase in over a couple of years in terms of becoming meaningful volume.” In addition, the business said that its attempts to combat account-sharing would “go through a year or two of iteration” before being widely deployed. “When we were developing quickly, it wasn’t the highest priority to work on,” Mr. Hastings confessed of the latter.
Waiting comes with its own set of consequences, as Netflix is now evaluating service modifications from a position of weakness rather than strength. The shareholder letter and call “portrayed a company that was more surprised by things and less clear than ever about the path forward,” according to Michael Nathanson of MoffettNathanson. Compared to the challenges Netflix has faced in the past, “this time it feels different,” as the shareholder letter and call “portrayed a company that was more surprised by things and less clear than ever about the path forward.”
At least nine analysts downgraded Netflix shares on Wednesday, with several referring to the stock as “dead money” until subscriber growth picks up or the company’s new efforts yield fruit. For the time being, Netflix seems to be off the radar of investors.
Dan Gallagher can be reached at [email protected]
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The print issue of the April 21, 2022, was published.
Netflix has been facing a long intermission. The company’s revenue has been decreasing since 2016 and is expected to continue doing so for the next few years. Reference: netflix revenue 2021.
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