Netflix stock plunges 35% in company’s worst day since 2004: Streaming giant loses $54 BILLION in value after shedding 200,000 subscribers in first quarter as viewers complain there’s ‘nothing to watch’
- The struggling streaming giant’s shares plummeted 35% on Wednesday
- It was the worst day for Netflix shares on a percentage basis since 2004
- The plunge wiped $54 billion off Netflix market cap, the biggest drop ever
Netflix stock plunged 35 percent on Wednesday after the company admitted to a net loss of 200,000 subscribers in the first quarter, stunning investors.
Shares closed at $122.42, after shedding more than a third of their value in the company’s biggest one-day drop on a percentage basis since 2004.
Netflix stock was the worst performing on the S&P 500 for the day, and the wipeout erased about $54 billion from the company’s market capitalization, the largest one-day drop in company history.
The shares have now lost 62 percent of their value since the beginning of the year, amid fears that the streaming wars will prove to be an unwinnable money pit.
At least a dozen analysts rushed to temper their views on the crisis – noting that Netflix had been a red-hot market performer over the past few years.
But Elon Musk was among those to slam Netflix yesterday, saying it had become ‘unwatchable’ after being infected by the ‘woke mind virus’.
Meanwhile furious viewers also blasted the company for being ‘too expensive’, having ‘nothing to watch’ and not wanting to hear Prince Harry and Meghan’s Markle’s ‘lectures’.
This graphic shows how Netflix benefitted from the Covid boom. Between January and March 2020, business continued as it had done in 2019 and 2018, before the number of new accounts rocketed from mid-March through to May as much of the world went into lockdown.
Netflix CEO Reed Hastings: Founder with Santa Cruz mansion and two jets
Netflix CEO Reed Hastings in the Milken Institute Global Conference in Beverly Hills on October 18, 2021
Hastings was born in Boston, Massachusetts, attended Bowdoin College, and after considering serving in the armed forces as a Marine, joined the Peace Corps instead. He then got a masters in computer science from Stanford University in 1988. Before Netflix, he founded Pure Software, a software troubleshooting company in 1991. He later left the company after an acquisition to start Netflix in 1997 with colleague Marc Randolph.
Netflix, which initially offered DVD rentals by mail, grew rapidly as the internet expanded and Hastings became the unchallenged boss when Randolph left in 1999. But it was when Netflix began producing its own content that the California-based company truly became a force to be reckoned with. Hastings certainly enjoys the fruits of his labour, sharing his vast home with his wife of more than 30 years, Patty Ann Quillin, and their two adult children, musician Molly and Sean. Together, they lead a lifestyle that seems an unusual blend of high-tech luxury and pastoral charm.
It was previously reported that they own two private jets. The Santa Cruz mansion boasts an Olympic-sized swimming pool and a 12-person Jacuzzi. A home theatre – for Netflix binges, no doubt – has cutting edge Dolby Atmos surround sound, a system more advanced than most US cinemas. And their vast garage can house 12 cars, while the driveway has space for a further 15.
On Tuesday the streaming giant said it had shed 200,000 subscribers in its first quarter, falling well short of its modest predictions it would add 2.5million.
Its decision in early March to suspend service in Russia after it invaded Ukraine resulted in the loss of 700,000 of its members.
The company’s stock plunged by 27 per cent in after-market trading on Tuesday afternoon.
But it pummeled other streaming-related stocks, with Roku falling over 6 per cent, Walt Disney by almost 4 per cent and Warner Bros Discovery down 2 per cent.
Netflix, which currently has 221.6 million subscribers, last reported a loss in customers in October 2011.
The firm offered a gloomy prediction for the spring quarter, forecasting it would lose 2 million subscribers.
This is despite the return of series such as ‘Stranger Things’ and ‘Ozark’ and the debut of the film ‘The Grey Man,’ starring Chris Evans and Ryan Gosling.
Wall Street targeted 227million for the second quarter, according to Refinitiv data.
First-quarter revenue grew 10 per cent to $7.87billion, slightly below Wall Street’s forecasts of $7.93billion. It reported per-share net earnings of $3.53.
Netflix said yesterday: ‘The large number of households sharing accounts — combined with competition, is creating revenue growth headwinds.
‘The big COVID boost to streaming obscured the picture until recently.’ The world’s dominant streaming service was expected to report slowing growth.
Analysts also rushed to temper their views on the plummeting stock prices, pointing out it has been solid over the last few years.
Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh, said: ‘Netflix is a poster child for what happens to growth companies when they lose their growth.
‘People buy growth companies because they think their cash flow is going to grow so they’re paying ahead for anticipating that. When a stock like this tumbles, people looking for growth back away quickly.’
Brokerage JP Morgan made the most aggressive move by halving its price target to $305 – well below the stock’s median Wall Street target of $400.
JP Morgan analyst Doug Anmuth said: ‘Near-term visibility is limited … and there’s not much to get excited about over the next few months beyond the new, much lower stock price.’
Anmuth also slashed his estimate for 2022 net subscriber additions by half to 8 million.
The share slump could erase the stock’s gain over the past two years, when its business thrived as new customers joined its platform to ride out the lockdowns.
In an effort to calm nerves, company executives told analysts they were looking to offer an advert-based tier over the next year or two.
They also promised a crackdown on password sharing – a long-running problem for the service.
‘We’ve got the full kitchen sink … That might not be enough,’ said Russ Mould, investment director at AJ Bell.
Netflix is losing billions of dollars a year because of illegal password-sharing ‘marketplaces’ that offer access for just $1, experts have claimed. The popular streaming app is missing out on up to $6.25billion annually as customers use the services to dodge the $19.99 a month premium account fee.
General views of the Netflix Hollywood campus on Vine on April 19, 2022
It comes amid intense competition from established rivals like Amazon.com and traditional media firms such as Walt Disney, Warner Bros Discovery and Apple.
Responding to a tweet about the subscription service’s devastating performance, Musk said: ‘The woke mind virus is making Netflix unwatchable.’
A follower then responded: ‘Woke mind virus is the biggest threat to the civilization.’ The world’s richest man replied to him: ‘Yes.’
Netflix has released a variety of recent hits including Squid Game, Bridgerton and Sex Education.
But it has also produced ‘woke’ content such as He’s Expecting, which depicts a man who becomes pregnant.
Viewers also blasted the company this week, saying they had no interest in Harry and Meghan’s ‘patronising, virtue-signalling lectures’, that there was ‘nothing to watch’ and it was ‘too expensive’.
One customer said: ‘Making Harry and Meghan program directors definitely didn’t help Netflix.’
Another wrote: ‘Netflix has been Markled. The curse of having Meghan Markle and Harry.’
A third said: ‘The majority of the public are not remotely interested in watching content like Harry & Meg’s patronising, virtue-signalling lectures on Netflix either, no wonder their prices have gone up!’
They added: ‘If Netflix don’t serve up better content, the subscription isn’t value for money.’
Another posted: ‘Nothing on Netflix seemed interesting enough to watch. We cancelled it recently to save money’.
And one more added: ‘I’m one of those who recently cancelled Netflix, largely because it’s a massive time suck and there’s nothing really good to watch. Maybe produce decent content and people will hang around?’
Elon Musk has slammed ‘unwatchable’ Netflix, managed by CEO Reed Hastings (right) for becoming infected by the ‘woke mind virus’ as the streaming giant hemorrhages subscribers
New Netflix show He’s Expecting depicts a man who becomes pregnant, with some viewers turning off at its ‘woke’ programming
Harry and Meghan attend the Invictus Games opening ceremony at Zuiderpark on April 16, 2022 in The Hague, Netherlands
Streaming services spent $50billion on new content last year, in a bid to attract or retain subscribers, according to researcher Ampere Analysis.
That is a 50 per cent increase from 2019, when many of the newer streaming services launched, signaling the quick escalation of the so-called ‘streaming wars’.
As growth slows in mature markets like the US, Netflix is increasingly focused on other parts of the world and investing in local language content.
It said: ‘While hundreds of millions of homes pay for Netflix, well over half of the world’s broadband homes don’t yet — representing huge future growth potential.’
Netflix has been able to increase subscription prices in the US, the UK and Ireland to fund content production and growth in other parts of the world, such as Asia.
But subscriptions in these growth markets are lower.
Benchmark analyst Matthew Harrigan warned the uncertain global economy ‘is apt to emerge as an albatross’ for member growth and Netflix’s ability to raise prices.
Streaming services are not the only form of entertainment vying for consumers’ time.
The latest Digital Media Trends survey from Deloitte, released in late March, revealed Generation Z, those aged 14 to 25, spend more time playing games than watching.
The majority of Gen Z and Millennial consumers polled said they spend more time watching user-created videos like TikTok and YouTube than streaming services.
Netflix, recognizing the shift in consumer entertainment habits, has begun to invest in gaming, but it does not yet contribute materially to the company’s revenue.
Why is Netflix losing viewers, and what will it do now?
What are Netflix’s issues?
The main issue for Netflix is simply that it lost viewers over the start of the year while its biggest rivals made gains.
Netflix revealed on Tuesday that it lost 200,000 users over the first three months of 2022, falling well short of predictions it would add 2.5 million subscribers.
In the UK, the pressure on streaming firms has become apparent as customers look to reduce their number of subscriptions as they witness soaring energy and goods bills during the cost-of-living crisis.
Experts at Kantar said earlier this week that around 1.5 million subscriptions have been axed in the UK since the start of 2022.
Netflix said the challenging economic backdrop, war in Ukraine, slowing rollout of broadband in some countries and the large number of subscribers sharing their account details with non-paying households have all contributed to the decline.
The company’s withdrawal from Russia following the invasion of Ukraine meant it immediately lost its 700,000 customers in the region, but the firm would have still seen figures significantly below expectations without the intervention.
As customer spending comes under pressure, the group faces increased demand for high quality content in order to justify people’s subscription fees.
The firm’s key challenge in recent years has been to ensure a strong roster of original series and films as many previous partners, such as Disney, withdrew their content to start up their own platforms.
The Netflix logo is seen on a TV remote controller in this illustration photo taken January 20, 2022
How bad could the subscriber exodus get?
The key reason shares dropped so sharply on Tuesday was because bosses warned shareholders that the situation was going to get worse before it got any better.
Netflix predicted that another two million users will leave in the three months to July.
The company said its profits dropped 6% over the latest quarter and the downbeat outlook could suggest an even sharper profit decline could be on the cards.
Freetrade’s Paul Allison said the predicted drop in users is ‘a worrying sign… at a time when the firm is raising prices across the board to generate enough cash flow (which is currently negative) to maintain an entertaining line-up of shows’.
The streaming firm will hope that its recent heavy investment in fresh content and franchises will quickly bring rewards.
Last year, the company announced multimillion-pound deals to buy the works of Roald Dahl and the rights to the upcoming Knives Out sequels.
It will also hope that the return of top performing series – such as Stranger Things next month – will halt customers thinking about axing their subscriptions.
What could they do next?
Bosses at the company said on Tuesday that they are considering a number of significant changes which could improve customer numbers and profitability.
They said they are now open to adding advertising to the service, in return for a cheaper subscription.
Reed Hastings, co-founder and chairman of Netflix, has long been opposed to introducing commercials to the service but could make the move to add another revenue stream.
The company could also clamp down on customers sharing their accounts with other households.
Netflix started a crackdown in Chile, Costa Rica and Peru on people sharing passwords and is considering expanding the scheme.
The company said in its latest financial report that it believes it is being shared with 100 million extra households alongside the 222 million paying for the service.
Rivals?
When Netflix first U-turned from DVD-rental to home streaming the company had very few competitors, but has seen a flurry of competition grow in recent years.
People have signed up to numerous subscriptions in recent years but are now starting to reduce the number they pay for as they tighten their belts due to the cost-of-living crisis, creating more competition.
Disney+ has been a particular winner over the past year, with the firm attracting more customers than initially expected as families signed up during the pandemic.
Netflix also continues to face competition from Amazon, which acquired James Bond studio MGM last month in an 8.5 billion dollar (£6.5 billion) deal to build a library of content for subscribers.
However, one of the group’s biggest competitors is also the desire from customers to spend any time away from screens.
Reed Hastings infamously said that Netflix saw the human need to sleep as a bigger competitor than Amazon and HBO as it takes up a ‘very large pool of time’, saying it benefits from viewers staying up late because they get addicted to a series.
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