Netflix Is Down By 39%, Here Is Why

Key Insights

• Netflix stock dives after the company reports that net subscribers decreased by 200,000 in Q1 2022. 
• The company’s subscriber forecast for Q2 2022 shocks the market. 
• Netflix’ growth story is busted, and the company needs to come up with positive catalysts to break the current downside trend. 

Netflix Stock Collapses As The Company Predicts A Loss Of 2 Million Subscribers In Q2 2022

Shares of Netflix found themselves under strong pressure after the company released its first-quarter report. Netflix reported revenue of $7.87 billion and earnings of $3.53 per share, beating analyst estimates on earnings and missing them on revenue.

The market focused on the company’s subscriber data as Netflix said that it lost 200,000 subscribers in Q1 2022. More, the company believes that net subscribers will decrease by as much as 2 million in the second quarter of 2022.

The market is clearly shocked by this news, and Netflix stock is down by 39% during the current trading session. Other stocks in this market segment, like Disney  and Paramount, are also moving lower.

What’s Next For Netflix Stock?

Netflix has been a classic growth stock for years, so investors were focused on the company’s subscriber numbers and potential revenue opportunities rather than the company’s valuation.

Currently, analysts expect that Netflix will report earnings of $10.96 per share in 2022 and earnings of $14.17 per share in 2023, so the stock is trading at 15 forward P/E.

Such valuation levels look cheap for one of the leading tech stocks, but earnings estimates have been moving lower in recent months and they will decline after the earnings report.

Recent market action shows that tech stocks get severely punished if the market has doubts about their ability to grow. Examples include Roku (from $490 to $98), Zoom (from $588 to $95), Peloton  (from $171 to $20).

In this light, it remains to be seen whether speculative traders will rush to buy Netflix shares after the huge pullback which took the stock from the $700 level to the $215 level.

Netflix promised to monetize shared passwords and explore a move into advertising, but the company will have to come up with tangible evidence of the success of such initiatives before the market is ready to view it as a growth stock again.

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