Netflix plunged 20% after Q4 earnings

10:40 AM January 21, 2022
  • Netflix relesed Q4 2021 earnings yesterday after session close
  • Headline results in-line with expectations
  • Big miss in Q1 2022 subscriber forecasts
  • Company takes note of increased competition
  • Stock plunged 20% in after-hours trading

Netflix (NFLX.US) reported Q4 2021 earnings yesterday after the close of the Wall Street session. Report was seen as a major disappointment with forecasts pointing to weaker subscriber growth amid rising competition. Let's take a look at headline results:

  • Revenue: $7.71 billion vs $7.71 billion expected

  • EPS: $1.33 vs $0.82 expected

  • Net subscriber additions in Q4 2021: 8.28 million vs 8.19 million expected

  • Paid memberships at the end of 2021: 221.8 million vs 203.7 million at the end of 2020

  • Average revenue per user in Q4 2021: $11.58 vs $11.73 in Q3 2021

  • Q1 2022 net subscriber forecast: 2.5 million vs 6.9 million expected

On the first glance, headline results from Netflix for Q4 2021 does not look that bad - revenue matched median estimate while net subscriber additions and earnings beat expectations. However, while subscriber additions managed to beat market expectations, they have failed to beat the company's own forecasts! Netflix expected net additions in Q4 2021 to be the same as a year earlier in Q4 2020 - 8.5 million. What was even more disappointing were forecasts for the coming quarter. Netflix expects to add 2.5 million net subscribers during the first quarter of 2022 - down from 3.98 million it added in the first quarter of 2021. Market expectations for net subscriber additions in Q1 2022 stood at 6.9 million ahead of Netflix earnings release.

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Given how much market expectations for Q1 2022 missed the company's expectations, one can say that disappointment in Q4 2021 was small. It should be noted, however, that Netflix has delayed a lot of premiers initially scheduled throughout 2021 to the end of the year and it was expected to result in a big jump in new subscribers. Another source of concern is the first drop in average revenue per user since the beginning of pandemic.

Netflix acknowledged that it may be losing its leader position in the streaming industry. Company said that competition within the industry has greatly increased over the past 24 months with more and more companies entering the field, like Disney or Amazon. Netflix tries to offset weaker subscriber growth with higher prices and has recently boosted prices in the United States and Canada. However, too aggressive price increases create risk of consumer exodus, which would make the outlook for the company even less bright.

Taking a look at Netflix chart (NFLX.US) we can see that the stock finished yesterday trading near the lower limit of the Overbalance structure (equality with 2018 drop). However, stock plunged 20% in the after-hours trading following the release of the Q4 2021 earnings report. Current pre-market quotes point to the launch of today's trading below the $480-565 trading range. Stock is set to begin today's trading in the $400 area - the lowest level since May 2020. If moods remain sour today and share price continues to drop, the first support zone to watch can be found in the $380 area.

Source: xStation5

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