By Ethan Currie, Staff Writer
Netflix (NFLX) stock fell 21.79% late last week, to $397.50 per share, down from $508.25. The streaming giant, valued at roughly $230 billion prior to Thursday’s Q4 2021 earnings report, plummeted to a market cap of just over $176 billion by end-of-day Friday. Despite having over 220 million global subscribers, Netflix reported slightly lower-than-expected membership growth. This, in combination with an increase in subscription prices, and an underwhelming growth forecast, has caused many investors to abandon ship, in anticipation of a rocky 2022.
Since its IPO in May 2002, Netflix has performed extremely well, especially in the recent past, with a pandemic-level catalyst. The quarantine period had yielded an impressive amount of streaming traffic, and with the release of popular Netflix original shows, such as Outer Banks and Squid Game, the stock reached an all-time high of $700.99 on November 17th, 2021.
As COVID-19’s impact weakens, and lockdown restrictions ease, analysts expected strong growth ahead for Netflix, in-line with the media and streaming industry. However, with weak subscriber projections, and fierce competition in the form of Disney Plus (DIS), Apple TV (AAPL), Amazon Prime (AMZN), HBO Max (T), and more, investors question whether the moat around Netflix is drying up for good.
Earlier this January, Netflix bumped its monthly subscriber costs in the U.S. and Canada, with the standard plan increasing from $13.99 to $15.49, and $14.99 to $16.49, respectively. Recognizing a slowing growth in subscribers, and an exponential growth in competition, a Netflix spokesperson empathized that “people have more entertainment choices than ever, and we’re committed to delivering an even better experience for our members.” They then added, “we’re updating our prices so that we can continue to offer a wide variety of quality entertainment options.” With most of the company’s recent subscriber growth coming from overseas, these price increases may signify a loss in North American market share for Netflix.
According to the most recent report, projected subscriber gains for Q1 2022 are 2.5 million, which compares poorly to last year’s Q1 numbers, which revealed Netflix acquiring 4 million users. While some see Netflix’s anticlimactic forecasts to be the result of increasing competition, co-CEO Ted Sarandos told investors, “We didn’t see a hit to our engagement. We didn’t see a hit to retention – all of those things that would classically lead you to looking at competition.” To ease the minds of shareholders, management was firm in their stance that a pandemic overhang was still in effect, resulting in sub-optimal growth in the short run.
Despite the stock’s recent crash, many analysts remain bullish on Netflix. Although the short-term prospects may deliver some unwanted volatility, the long-term positive outlook for the company remains, potentially allowing for investors to buy-in at the lower prices seen today.With Netflix’s next earnings report (Q1 2022) expected to release on April 18th, it will be interesting to see if worry over subscriber counts continues to rise. As the streaming market gradually replaces traditional television, it also becomes more saturated with competition. Additional choice between reputable brands, various content portfolios, and individual concerns about aggregate subscription costs all make it difficult to predict whether Netflix will remain as the largest streaming service in the world. In this highly innovative market, many companies pose a legitimate competitive threat to the once dominant force.