Netflix shares lost more than 35% of their value in New York on Wednesday, after the streaming giant announced that it had hit I lost over 200,000 subscribers In the first three months of the year, it said it expects to lose another 2 million over the next quarter.
The sharp drop wiped out $50 billion in Netflix’s value and comes as subscribers rethink their commitment to streaming services whose numbers have grown so sharply during the homecoming months of peak lockdown. Netflix It was expected to add 2.5 million customers in the first quarter.
A number of competing services have also entered the market, including Disney, Warner Bros Discovery, and Paramount, which often have deeper, more reliable content libraries. Netflix stock, which has already been down 40% for the year, fell from $700 in November to $244 at the market open, a drop of nearly two-thirds.
On Tuesday, the company said it faced “revenue growth headwinds”. It recently raised subscription prices despite signs of slowing consumer growth, with a basic monthly package now costing US customers $15.49.
“We are definitely feeling higher levels of market penetration … and increased competition,” said Ted Sarandos, Co-CEO.
In terms of capitalization, Netflix is now worth $1,009 billion, a number that will make it more difficult for it to manage in Los Gatos, California to raise money to fund investment to produce the content on which subscriber growth depends.
The confluence of negative forces, from the lifting of the pandemic, the loss of 700,000 subscribers in Russia, and high consumer inflation in several key markets forcing households to rethink their budgets, has hurt the service.
Elon Musk, the Tesla CEO who is currently making a hostile takeover bid for Twitter, has claimed that a “mind-wake virus” is to blame for Netflix’s drop — not competition, password crackdowns or inflation pressure. “The Awakened Mind Virus makes Netflix unwatchable,” Musk wrote on Twitter.
Wednesday’s crash comes after a period of incredible growth for the company combined with investor demand for the stock. Netflix, like Peloton and GameStop, have been benefiting from the cash that has flowed through economies during the pandemic, fueling demand for stocks.
“This is not the end of Netflix, but it will require re-tooling, perhaps with video games and other sources of future growth,” says Eric Schaefer of Los Angeles-based private equity firm The Patriarch Organization. “They got a massive subscriber count because people were stuck at home but now they’re at a certain saturation point, and they’re dealing with some real competition.”
Netflix shares are up 86% from the end of 2019 through 2021, while the S&P 500 is up 48%.
Reed Hastings, co-CEO, said addressing account sharing is now a priority for the company. An estimated 100 million households use accounts that they do not pay for. “When we were growing so fast, that wasn’t a high priority, but now we’re working really hard on it,” Hastings said.
The company also said it will try to drive growth by improving the “quality of our software” and considering offering a lower-priced subscription option supported by an advertiser.
“I’ve been against the complexity of ads and love the simplicity of signing up,” Hastings said on Tuesday. “But as much as I like that, I’m a huge fan of consumer choice.”
“No one expected Netflix to announce that it had lost its subscribers. They were expecting a slowdown in subscriptions, but seeing Netflix lose subscribers is a big deal,” Ipek Ozkardeskaya, chief analyst at Swissquote Bank, an online broker, He told the Wall Street Journal,.
“People ask,” Ozkardiskaya said, “is it worth it?” “As prices go up, the value threshold is pushed up and that drives people out.”
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