Netflix stock loses nearly 40% of value Wednesday after subscriber loss


  • Netflix lost 200k net subscribers in Q1.
  • NFLX stock collapsed more than 25% afterhours, falling back to 2019 prices.
  • The leader in streaming is guiding for a further loss of 2 million subscribers in Q2.

UPDATE: Netflix stock dropped as much as 39% on Wednesday, one day after the streaming leader announced it had lost 200,000 subscribers in the first quarter. Shares were down closer to 30% in the premarket. An hour into the session, NFLX stock had climbed off a low of $212.51 to $221.20, still down 37%. Puts expiring this Friday at the $250 strike price have jumped 3,000% in value to $15.50. More than 5,200 contracts have traded hands in the first hour on Wednesday.

Netflix stock (NFLX) tumbled 25.7% afterhours on Tuesday after management's Q1 earnings report proved its doubters correct. Rather than adding the 2 million net subscribers it had predicted during the previous earnings call, Netflix announced a loss of 200,000 subscribers in total. This is the first drop-off in subscribers since 2011. With NFLX shares now down to $258.90 in Tuesday's afterhours trade, the streaming giant has lost  63% since its all-time high just five months ago.

Netflix Stock News: Guiding for futher losses

If there was any positive sign in the earnings call, it was earnings itself. Netflix reported adjusted earnings of $3.53 per share, more than 17% ahead of the $2.92 expected by analyst consensus. This positive mark was more than overshadowed by a straightforward revenue miss – $7.87 billion reported compared with a $7.94 billion forecast.

Worse than the 200,000 decline in subscribers was management guiding for another 2 million lost on net in the current quarter (fiscal Q2). In Q1 Russia amounted to a major negative lever. Suspending its Russian service due to the war in Ukraine cost it 700,000 subscribers. The US and Canada also combined to hurt subscription levels by 600,000. This latter group's dismal results were due in part to a subscription price increase during the quarter, although management said the price increase increased revenue overall in the region.

Management also blamed heavy subscriber gains during the stay-at-home Covid-19 pandemic for leading to a subscription drop-off now that the pandemic has largely subsided. Related studies show that both inflation and competition may be hurting streaming overall. A report from market research firm Kantar showed that 1.5 million industry-wide streaming accounts were abandoned in Britain during the first quarter. It said nearly 40% of cancelled subscriptions were due to saving money in this new climate of inflation. Another study, Fandom's State of Streaming Report, says that 61% of subscribers think their streaming subscriptions are too expensive.

"Our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds," Netflix said in a statement.

One surprise during the call is that co-CEO Reed Hastings said he is now open to offering a cheaper, ad-based version Netflix, which is a strategy Netflix has ignored publicly for years.

 

NFLX key statistics

Market Cap $151 billion
Price/Earnings 30
Price/Sales 5
Price/Book 9
Enterprise Value $164 billion
Operating Margin 21%
Profit Margin

17%

52-week high $700.99
52-week low $329.82
Short Interest 2%
Average Wall Street Rating and Price Target Buy, $503.36

Netflix Stock Forecast: Hopes that $253 holds

NFLX stock blasted right through support at $290 in the afterhours trade. $290 was the low from the initial Covid-19 panic. Now floating around $260 in the Wednesday premarket, investors can only hope that $253 holds up. This area of support stems from September of 2019. Yes, that is right. Netflix has lost two-and-a-half years of share price gains. If $253 does not hold, and there is a good chance it will not, then $231.50 is another target for bears. This was support during December 2018. With the Relative Strength Index (RSI) now at 21, NFLX is deeply oversold. This is, however, its second major plunge of the year after its 22% decline during the Q4 call in January. The best bet is not to jump into Netflix at such low prices, since this daily chart sure looks ragged at the moment.

NFLX 1-day chart

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