Netflix Shares Plunge 37% on Shocking Subscriber Loss

Reed Hastings, founder, Netflix speaks on stage at the 2019 New York Times Dealbook on November 06, 2019 in New York City.

Michael Cohen | Getty Images

Shares of Netflix plunged 37% on Wednesday morning after the streamer reported Tuesday evening earnings that showed it was losing subscribers for the first time in more than 10 years. The results and the weak outlook led to a wave of write-downs on Wall Street amid fears about the company’s long-term growth potential.

Netflix said several headwinds are impacting growth, including increasing competition and lifting pandemic restrictions. The video streamer company took advantage of home orders from the coronavirus, with more people looking for digital entertainment. But in recent months, people have been spending less time on digital platforms as vaccines rolled out and mandates relaxed.

Slower growth in household broadband also played a role in the company’s weak forecast. Netflix estimates that 100 million households share their subscription passwords with other family or friends.

The company, in an effort to boost growth, said it is considering a lower-priced ad-supported tier and suggested a crackdown on password sharing. And while analysts generally seemed optimistic about these changes, they noted that it wasn’t a short-term fix for the subscriber base.

“While their plans to accelerate growth again (limiting password sharing and an ad model), they say they won’t have a noticeable impact until ’24, a long time to wait for what is now a ‘let me tell story’, Analysts at Bank of America said in a note Wednesday, saying the company was one of at least nine companies to downgrade Netflix based on the disappointing report.

“After what can only be called a shocking 1Q subscriber miss and weak subscriber and financial guidance, we have lowered our subscriber forecasts and significantly scaled back our profitability forecasts,” Pivotal analyst Jeffrey Wlodarczak wrote in a note dated Tuesday. The company downgraded its stock to sell rather than buy.

Wells Fargo analysts wrote in a Wednesday note downgrading the stock to equal weight that “negative sub-growth and investment to re-accelerate earnings are the nail in the NFLX narrative coffin, in our view.”

Shares of several streaming services took a plunge Wednesday morning, along with Netflix, as investors await updates on their growth. Shares of Disney fell about 5% after markets opened on Wednesday. Similarly, Roku’s stock fell more than 7%, Paramount stock fell 12% and Warner Bros. Discovery by about 5%.

“Gross added activity remains softer than expected, so subscription businesses may experience similar pressures throughout this earnings season, although we find that NFLX is unique in that it is much more pervasive, especially when it comes to password sharing,” said Wolfe Research. in a Tuesday note. The company maintained its outperform rating.

— CNBC’s Michael Bloom contributed to this report.

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