Netflix stands to shed nearly $45 billion in market cap after ‘borderline catastrophic’ forecast

Netflix brought in more than 8 million new subscribers in the quarter, but executives predicted that growth would suffer more than expected at the start of 2022, sending shares tumbling in after-hours trading.

Netflix NFLX,
-1.48%
Thursday announced 8.3 million new paid subscribers in the fourth quarter, beating its forecast of 8.5 million but nearly reaching the average analyst forecast of 8.3 million, according to FactSet, and giving the video streaming service 221.8 million subscribers overall as of the end of 2017. 2021.

The figure was tempered by the stark warnings of some analysts, including JPMorgan’s Doug Anmouth, who had feared a massive shortage of new subscribers, but executives see a sharp slowdown ahead — they forecast just 2.5 million new subscribers in the first quarter, less than half. 5.8 million, on average, were expected by analysts, according to FactSet.

In a video call after the results, Spencer Newman, Netflix’s chief financial officer, said it was difficult to pinpoint why the number of new subscribers had fallen, but that it could be attributed to “COVID overload” after two years and a “marginal effect from competition.”

Netflix shares tumbled nearly 20% in after-hours trading after Thursday’s announcement, which would lose nearly $45 billion in market value from the streaming giant, which ended Thursday’s trading session worth more than $225 billion. The stock is down 12% over the past 12 months; The broader SPX of the S&P 500 index,
-1.10%
An improvement of 17% in the last year.

Netflix executives said the lack of new original programming, especially early in the quarter, was a factor in their expectations. Netflix unloaded a wealth of new content in the quarter, including new seasons of popular TV shows like “The Witcher” and “Emily in Paris” as well as some of the biggest movies the service has ever released, like “Don’t Look Up” and “Red Notice,” and we don’t expect big new releases until later in 2022.

“Our guidance reflects a more weighted slate of content on the back end in Q1 22 (eg, ‘Bridgerton’ S2 and our new original movie ‘The Adam Project’ will be released in March),” they wrote in a letter to contributors. Additionally, while retention and engagement remain intact, acquisition growth has not yet been accelerated to pre-COVID levels. We believe this could be due to several factors including the ongoing COVID buildup and macroeconomic difficulty in many parts of the world.”

Netflix’s subscriber growth waned as the COVID-19 pandemic progressed, and the streaming service added a total of 18.2 million new subscribers in 2021, less than it added in just the first six months of 2020, when the virus first spread worldwide and triggered a wave of restrictions. On the shelter in place.

SEE ALSO: Some on Wall Street want Netflix to stop reporting subscriber growth

With subscriber growth slowing, Netflix sought to increase prices in mature markets to continue increasing revenue. After raising prices in October 2020 for the US and Canada, Netflix confirmed last week that it was doing so again for that region, pushing the price of its base plan above the cost of AT&T Inc.
-0.95%
HBO Max streaming service.

The recent increase in the subscription price for Netflix points to the company’s highest domestic growth potential, with 74 million households in the United States and Canada, Berna Bershai, an analyst with Empire Financial Research, told MarketWatch.

She added that the “evidence of the underwriting was disastrous, and they faced the law of large numbers” with a massive valuation share price.

Netflix said its sales grew to $7.71 billion in the quarter, up from $6.6 billion in the same period last year. Earnings were expected to fall as a wave of Netflix premieres required recognition of the costs of expensive content like the latest season of “The Witcher,” but the company reported earnings of $607 billion, or $1.33 per share, up from $1.19 per share. for a year. Analysts polled by FactSet had expected earnings of 83 cents per share on sales of $7.71 billion.

Read: Here’s what’s coming to Netflix in February 2022 — along with price hikes

Netflix continues to win the loyalty of viewers around the world – 70% of desktop visitors watched it exclusively – despite the glut of competition from HBO and Apple Inc. AAPL,
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The Walt Disney Company DIS,
-1.66%And
Amazon.com Inc. AMZN,
-2.96%And
Comcast Corp. CMCSA,
-0.22%And
ViacomCBS Inc. more,
-3.82%
et al., based on figures from a similar data intelligence platform in December 2021. A similar site noted that fewer consumers are canceling Netflix, based on a lower cancellation rate.

However, Netflix’s grip on the market has eroded over the past two years as competition has intensified, according to one of the research firms. From the second quarter of 2020 to the fourth quarter of 2021, Apple TV +, Disney + and HBO Max combined grew from 10.6% to 20.6% of global interest among consumers, while Netflix fell from 55% to 45.4%, Julia Alexander, senior analyst In Parrot Analytics, for MarketWatch.

In their letter to shareholders, Netflix executives acknowledged that competition affects growth, the first time they have offered such acceptance in a regular quarterly update of the competition.

“While this additional competition may impact our marginal growth for some, we continue to grow in every country and region in which these new broadcast alternatives have been launched,” the executives wrote, later adding that “with less than 10% of total television screen time in the states In the United States, our largest market, Netflix has tremendous room for growth if we can continue to improve our services.”

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