Why Shares Of Netflix Are Down By 8% Today?

Netflix Video 21.04.21.

Netflix Stock Falls As Subscriber Growth Slows

Shares of Netflix found themselves under strong pressure after the company released its quarterly results. Netflix reported revenue of $7.2 billion and GAAP earnings of $3.75 per share, beating analyst estimates on both earnings and revenue.

While financial results exceeded expectations, the market was very disappointed with the pace of subscriber growth. The company added 3.98 million global streaming paid memberships in the first quarter compared to its previous guidance of 6 million. In addition, Netflix expects to add just 1 million global streaming paid memberships in the second quarter of this year.

The company stated that “paid membership growth slowed due to the big Covid-19 pull foward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays”.

Netflix added that it anticipated a strong second half of this year as new seasons of its leading shows returned to the screen. The company also noted that streaming continued to gain market share from linear TV which was a long-term trend in entertainment.

What’s Next For Netflix?

Analysts expect that Netflix will report earnings of $9.89 per share this year and $12.99 per share in 2022 so the stock is trading at roughly 40 forward P/E even after the current sell-off. At such valuation levels, companies must meet growth targets, or their shares may quickly find themselves under pressure as it happened in the case of Netflix.

Some analysts have already upgraded the stock as they mentioned the opportunity to buy shares of Netflix at a discount to recent prices. However, Netflix will still have to show a clear path to robust growth amid serious competition in the domestic market and growing competition in the international market.

Netflix stated that it was less than 10% of TV screen time in the U.S. and even smaller in other regions which provided an opportunity to gain more market share. However, the company will have to convince the market that it will be able to return to higher growth or its shares will trade at a lower valuation.

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