Netflix (NFLX.US) shares drop nearly 25% in pre-market trading today. Quarterly results released by the company yesterday after close of the Wall Street session disappointed investors. The company was one of the main beneficiaries of the coronavirus pandemic and the global 'stay-at-home' trend. While the company still has more than 221 million subscribers worldwide, it reported a quarterly drop in overall subscriber count for the first time in more than a decade.
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Netflix reported a drop of 200,000 customers in the quarter ended March 31, compared to a projected increase of 2.5 million. By comparison, the company reported an increase of 4 million subscribers in the same quarter of 2021. The company is forecasting another significant loss of 2 million in the next quarter of this year;
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The company's revenue rose 9.8% to nearly $7.8 billion. Profit fell nearly 10% to $1.5 billion from $1.7 billion in the previous quarter;
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A blockade of Netflix's services in Russia is largely behind the decline in its subscriber count. The company estimates that it resulted in 700,000-subscriber drop;
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Netflix announces a crackdown on the mass sharing of passwords for accounts on the service. 100 million households worldwide use the same account on Netflix, more than 30 million in the US and Canada;
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The company conveyed that it had long ignored password sharing among customers because it thrived on the knowledge that such sharing existed. Management even saw the benefits of the phenomenon in terms of increased brand recognition. Netflix will eventually want to crack down on the phenomenon and suggests that many companies will follow suit;
"Relatively high household penetration - with a large number of households sharing accounts - combined with competition is making it difficult for us to grow revenue," the company explains. "Account sharing as a percentage of our paying members has not changed significantly over the years, but combined with the first factor, it means that it is harder to grow membership in many markets - an issue that has been overshadowed by our COVID growth."
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Management stressed that in the face of increasing competition from WarnerBros, Disney, Paramount and AppleTV+, it will be forced to tighten its previously very relaxed financial policies on the platform and will expect additional payments from password sharers;
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Netflix admitted in the letter that it is not growing revenues as fast as it would like, highlighting the huge negative impact of the fading of the pandemic on its stock valuation specifying that the pandemic has 'clouded the picture' of the real development of the company's business;
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The company's weakening performance and subscriber exodus is also influenced by the geopolitical situation and rising inflation, which can cause people to turn away from entertainment platforms and cut back on spending. Additionally, Netflix has recently raised prices;
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Key to the financial turnaround may be the placement of ads on the platform, which the platform has so far avoided. CEO Reed Hastings hinted at this possibility in a call with analysts yesterday: "Allowing consumers who like lower prices and are tolerant of advertising to get what they want makes a lot of sense." The company has also been increasingly involved in the gaming industry, partnering with Exploding Kittens the other week;
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Some value investors, including Bill Nygren still believe in Netflix's long-term growth The lifting of quarantines and the passing of the pandemic could mean a real test of the long-term growth potential of the company's services. The company intends to overcome the crisis by 'improving the service.
Netflix (NFLX.US), D1 interval. The stock has been in a strong uptrend since 2016, with price peaking in late-November 2021. We can see that the long-term trendline was broken after the release of weak Q4 2021 earnings amid concerns over slowing growth momentum. The line of least resistance is running downwards at the moment, and an opening of the stock near $250 could mean an entry into a key demand zone stemming from the proximity of the 78.6% Fibonacci retracement and local lows from previous years. Investors who believe in the long-term success of the Netflix platform may see a buying opportunity in historical terms at current price levels, however the company itself does not forecast a dynamic improvement of its situation. Source: xStation5
