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Netflix (NFLX) stock has taken a significant hit in recent months due to growing concerns about its growth, increased competition, and rising operational costs. As a result, the stock is hovering near its lowest level since April 2020, having dropped over 45% from its all-time high. This decline is part of a broader sell-off affecting other media companies like Disney, Roku, CuriosityStream, and FuboTV.
The primary reason for Netflix’s stock struggles is the concern that its business may have peaked during the COVID-19 pandemic. As people return to work, there are expectations that the growth in new subscribers will slow down. In the last quarter, Netflix added 8.3 million users, bringing its total to 222 million, but it also lost subscribers in the United States. Analysts predict slower growth this year, and even Netflix’s management has downgraded its forward guidance.
However, Netflix is taking steps to address these challenges. Recently, the company announced plans to crack down on password sharing, a widespread practice globally. This initiative is currently being tested in Chile, Costa Rica, and Peru. According to analysts at Cowen, a full crackdown on password sharing could generate an additional $1.6 billion in global revenue, representing a 4% increase over Netflix’s 2022 revenue guidance. It’s estimated that about 42% of American subscribers share their passwords.
Netflix is also investing in gaming as a potential growth area. This week, the company announced a new lineup of mobile games, including “Unleashed,” “This is a True Story,” and “Shatter Remastered.” Netflix aims to make gaming a key part of its business in the coming years and is in the process of acquiring Next Games, a Finnish company known for publishing “The Walking Dead.”
Another potential boost for Netflix’s stock comes from its recent content investments, including shows like Dr. Seuss adaptations and “Inventing Anna.” According to Nielsen, “Inventing Anna” has been one of the top-streamed shows, with over 3.28 billion minutes watched. Other popular shows include “Love is Blind” and “Ozark.”
Since November 2021, Netflix’s stock has been in a steep decline, making it one of the worst-performing FAANG stocks. In February, the stock dropped 20% after weak quarterly results. Currently, it has formed a small descending channel pattern and is trading just below the upper boundary. Additionally, the stock’s smart money index (SMI) has been trending bearish.
In my view, Netflix will continue to face pressure until a new catalyst emerges, likely around its Q1 earnings report. While investor Bill Ackman remains optimistic, I don’t see signs of a bullish reversal at this time. This outlook may change if the stock manages to break above $400, which marks the upper boundary of the current channel.