Reed Hastings, founder of Netflix, will perform on the stage of the New York Times Dealbook 2019 on November 6, 2019 in New York.
Michael Cohen | Getty Images
Shares of Netflix fell 37% on Wednesday morning after the streamer reported earnings on Tuesday night, indicating it had lost subscribers for the first time in more than a decade. The results and weak outlook led to a wave of downgrading ratings from Wall Street due to concerns about the company’s long-term growth potential.
Netflix said growth was affected by several headwinds, including competition and easing restrictions due to the pandemic. The campaign was greatly backed by orders to stay home with the coronavirus as more people searched for digital entertainment. But people spent less time on digital platforms when vaccines appeared and eased mandates.
The slowdown in broadband growth in households also played a role in the company’s weak outlook. Netflix estimates that 100 million families share their subscription passwords with other family members or friends, making it difficult to expand their subscriptions.
The company has outlined changes to the pipeline to promote growth. He is considering a cheaper level with advertising support and has suggested that repression on password exchanges is approaching. And although analysts are generally positive about these changes, they generally believe that these changes will take a year or two to be meaningfully implemented.
“Although their plans to accelerate growth (restricting passwords and advertising models) have merit, by their own admission, they will not have a noticeable impact until the 24th year, long to wait for what is now ‘show me the story,'” Bank analysts wrote. of America in a note on Wednesday. The firm was one of at least nine companies that downgraded Netflix due to a disappointing report.
“After what can be called only a shocking mistake of subscribers in the first quarter and weak subscriber and financial management, we lowered our subscriber forecasts and significantly rejected our profitability forecasts,” wrote Pivotal analyst Jeffrey Vlodarchak on Tuesday. The firm downgraded the stock to sell out.
Wells Fargo analysts wrote in a note Wednesday that downgraded the stock rating to the same weight that “negative growth and investment to re-accelerate earnings, in our view, are a nail in the coffin of the NFLX story.”
Shares of several streaming services plunged on Wednesday morning along with Netflix as investors await updates on their growth. Disney shares fell about 5% after markets opened on Wednesday. Similarly, Roku shares fell more than 7%, Paramount shares fell 11.7% and Warner Bros. Discovery was down about 5%.
“Gross add-on activity is still softer than expected, so subscriber companies may experience similar pressures during this revenue season, although we note that the NFLX is unique in that it is much more pervasive, especially given password exchanges,” he said. Wolfe Research. in a note on Tuesday. The firm has maintained its top ranking.
– Michael Bloom of CNBC contributed to this report.