Netflix Shares Collapse After Surprising Subscriber Loss

Shares of streaming giant Netflix were falling on Wednesday after the company revealed a surprise subscriber loss in its most recent quarter.

The stock closed down 35%, erasing over $50 billion from its market cap, after the company said it lost 200,000 subscribers in its first quarter and warned of bigger losses to come. At least nine Wall Street firms downgraded Netflix after its disappointing report.

This is the first time that Netflix had lost subscribers in more than 10 years and the company has now become the worst-performing stock of 2022 in the S&P 500, down 62.5% year-to-date.

According to the company, several headwinds are affecting growth, including increasing competition and the lifting of pandemic restrictions.
The company’s business benefited from coronavirus stay-at-home orders, with more people seeking out digital entertainment. But in recent months people have been spending less time on digital platforms as vaccines rolled out and mandates eased.

Netflix also estimated that 100 million households are sharing their subscription passwords with other family or friends. To boost growth, the company is now considering a lower-priced ad-supported tier and suggested a crackdown on password sharing is coming.

“Although their plans to reaccelerate growth (limiting password sharing and an ad model) have merit, by their own admission they won’t have noticeable impact until ’24, a long time to wait on what is now a ‘show me story,’” Bank of America analysts noted.

“After what can only be called a shocking 1Q subscriber miss and weak subscriber & financial guidance we reduced our subscriber forecasts and pushed back our profitability forecasts substantially,” Pivotal analyst Jeffrey Wlodarczak wrote in a Tuesday note. The firm downgraded shares to sell from buy.

Wells Fargo analysts wrote that “negative sub growth and investments to reaccelerate revenues are the nail in the NFLX narrative coffin, in our view.” The bank downgraded the stock to equal weight.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.