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The situation is rapidly changing for Netflix, the smallest of the FAANG stocks. Netflix’s share price continued to decline in after-hours trading following the release of disappointing quarterly results. The stock plummeted by over 25% to $258, marking one of its worst days as a publicly traded company. This steep decline means the stock has now dropped by 63% from its all-time high, with its market capitalization falling below $120 billion. Other streaming stocks, including Disney, Warner Bros. Discovery, and CuriosityStream, also experienced significant losses.
Netflix has been under considerable pressure as investors shift their focus from companies that thrived during the pandemic to those that struggled. The belief is that companies that performed well during lockdowns will face a sharp slowdown in growth as people return to work. Other “lockdown stocks” like Shopify, Block, PayPal, and Zoom Video have also seen substantial declines in recent months.
Netflix’s share price took a hit after the company reported disappointing results on Tuesday. For the first time in a decade, Netflix lost customers, with a net loss of 200,000 subscribers in the first quarter. The company attributed this loss primarily to its decision to deactivate Russian accounts following the invasion of Ukraine, which led to a loss of 700,000 subscribers. Without this impact, Netflix would have added 500,000 new users.
Netflix also missed its revenue target, reporting $7.87 billion compared to the expected $7.93 billion. Earnings per share came in at $3.53, also below expectations. In addition to the situation in Russia, the company cited password sharing, the return-to-work trend, and rising competition as factors contributing to its poor performance.
To address these challenges, Netflix plans to increase spending on original programming and continue its crackdown on password sharing, potentially by limiting the number of devices allowed per account in a given country. Additionally, the company is considering launching a free, ad-supported tier in international markets.
In a recent article, I questioned whether Bill Ackman made the right move with Netflix. Ackman recently bought a significant amount of Netflix stock as it declined, citing the company’s valuation, strong brand, and straightforward business model as reasons for his investment. However, after this sell-off, Ackman’s Pershing Square is likely to see a hit, as his 3.1 million shares—worth about $1.1 billion at the time—are now valued at approximately $799 million, reflecting a loss of over $300 million.
Netflix faces several challenges moving forward. The company is expected to increase its spending on new content, which will likely impact its profitability. Moreover, competition from other streaming services like Paramount+, Disney+, Apple TV+, CuriosityStream, Peacock, and Discovery+ is intensifying. Given that many of these services offer similar features, Netflix may struggle to attract new subscribers. I previously discussed these concerns, questioning whether Netflix had become a bargain or a value trap.
Despite these challenges, there are reasons to believe that Netflix’s stock could recover in the long term. For instance, excluding the impact of its Russian exit, Netflix performed reasonably well in a difficult quarter. Additionally, the company has a large addressable market if it successfully cracks down on password sharing.
Before releasing its quarterly results, Netflix’s stock was trading within a tight range, finding strong support at $330. However, following the weak results, the stock crashed below this support level and is now trading below all its moving averages, with oscillators indicating oversold conditions.
Given these factors, Netflix’s share price is likely to continue declining in the coming weeks as investors push the stock below $200. Similar patterns have been observed in other stocks that crashed after earnings, such as DocuSign and Meta, making it challenging for them to regain their previous highs.