Netflix shares tumbled 30 per cent on Wednesday, extending a sell-off that has set it on course for a $46 billion wipe-out in market value, after it reported a sharp decline in its subscriber base.
Shares of the company traded as low as $232.36 in New York, extending its plunge this year to 60 per cent — making it the worst performing stock in the broad S&P 500 and the tech-heavy Nasdaq 100 indexes. Netflix has a 0.8 per cent weighting on the Nasdaq 100 and 0.3 per cent on the S&P 500.
The streaming service shocked Wall Street by losing 200,000 customers in the first quarter, the first time it has shed subscribers since 2011. It also projected that it will shrink by another two million customers in the second quarter.
“A big problem with Netflix is that it’s too easy to leave the service,” said Russ Mould, investment director at AJ Bell. Consumers feeling the pinch from inflation will be looking hard at their expenses and streaming services are a quick way to save money, he said.
The drop in customers has led Netflix to break some of its long-standing rules: it will introduce a cheaper, advertising-supported option for subscribers in the next few of years and before that will start to crack down on people sharing their passwords.
Netflix’s stock suffered this year as the pandemic-era surge in user sign-ups faded and investors turned away from high-value technology and growth stocks because of rising bond yields.
Fellow stay-at-home stocks, including Etsy, Zoom Video Communications and DocuSign have also been hit by deep losses, down by 33 per cent to 47 per cent in 2022, as these businesses struggle to leverage the inroads they made during lockdowns.
Netflix’s stock has been a Wall Street darling in recent years, with three of every four analysts covering the stock recommending a buy at the start of the year.
Now, even Wall Street bulls are flipping sides after Netflix missed even the most bearish forecasts, not just once, but twice in a row. Analysts across Wall Street slashed their price targets for the streaming company, while at least nine brokerages downgraded the stock.
JPMorgan’s Douglas Anmuth, who cut his "buy" recommendation that he had maintained since 2013, said he was encouraged by the company’s intentions of creating an ad business – a model that has worked for Hulu and Disney+ — but noted that it was still in the early stages.
With the downgrades, Netflix now has the lowest number of buy ratings since 2015, according to data compiled by Bloomberg.