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Market Insights

Netflix miss: streaming growth over?

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Netflix was our pick for stock of the week given the significance of the earnings report, and they’ve certainly stolen the headlines!

Here’s the chart including after-hours pricing. The two big red bars are the reactions to the last two earnings reports:

Netflix price chart

Netflix has now fallen by 63% since the November 2021 high of $700.45, touching $256.50 after-hours.

The fall dragged others down too, with Disney, Roku, Discovery & FuboTV all dropping by 4-6% in response, as investors fret about their respective subscriber growth.

Earnings Schedule

It’s a subscriber story

Netflix forecast a net addition of 2.5 million subscribers in Q1 2022, compared to 3.98 million during the first quarter of 2021.

What they delivered for Q1 2022 was a net subscriber loss: -200,000 subscribers and the first time they had lost subscribers in over a decade… Compounding matters, the streaming firm expects further subscriber losses ahead.

This has forced a reluctant pivot from CEO Reed Hastings:

“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,”

“I’m a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising tolerant to get what they want makes a lot of sense.”

Hastings said the firm will work on creating an ad-supported version over the next year or two.

Netflix also estimates that around 100 million people use the service without paying for it (password-sharing, piracy) and has begun trialling programs to crack down on the practice.

COO Greg Peters said:

“It’ll take a while to work this out and get that balance right. My belief is that we will go through a year or so of iterating, and then deploying that.”

It’s a new chapter for the company. Assumptions of perpetual subscriber growth can no longer be maintained. The next year or two will see changes as Netflix looks to mature and consolidate its position at the head of the streaming industry.

The firm also hinted that subscriber growth will not be the primary metric to monitor going forward:

“As we work to monetize sharing, growth in ARM [average revenue per membership], revenue and viewing will become more important indicators of our success than membership growth.”

Coming up….

Tesla will release first-quarter results after the market closes today.

Tesla share price

Tesla’s China sales fell in March due to the country's curbs to rein in COVID-19 outbreaks. Q1 production and delivery figures have already been announced. Tesla confirmed delivery of over 310,000 vehicles in Q1. As usual, analysts will be looking for guidance on the future.

There are plenty of questions to answer:

  1. Can Tesla keep hitting production targets?
  2. Is production ramping up at the new Berlin & Austin plants?
  3. Are price increases impacting sales?
  4. What’s the plan to deal with raw-material inflation?

And if CEO Musk appears on the call, there could be a few questions on his plans for Twitter too…

Not investment advice. Past performance does not guarantee or predict future performance.

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