Netflix Shares Slump To A New 52-Week-Low Over Slowing Subscriber Growth

The shares of Netflix, Inc. $NFLX: $397.50(-21.79%) slumped more than 23% in Friday’s intraday trade on NASDAQ despite its earnings coming better than expected in the fourth-quarter results.

The revenue for the quarter ended December 31, 2021, matched the estimates. But, subscribers net additions fell short of Wall Street expectations.

Q4 Financial Results:

Netflix reported earnings of $1.33 per share, ahead of analysts expectations of 82 cents.

Revenue was in accordance with market expectations at $7.71 billion.

Global paid net subscriber additions at the end of the quarter stood at 8.28 million, below the estimates of 8.19 million, according to StreetAccount estimates.

Netflix added 08.28 million global paid subscribers during the quarter, almost 3 percent less than what the company added in the year-ago period.

The company was looking to touch the milestone of 8.51 million again in this quarter but lagged. Sequentially, Netflix saw a 90 percent surge in additions of global paid subscribers during the quarter.

“We slightly over-forecasted paid net adds in Q4 (8.3m actual compared to the 8.5m paid net adds in both the year-ago quarter and our beginning of quarter projection). For the full year 2021, paid net adds totalled 18m vs 37m in 2020,” the company said in a statement.

Netflix said it expects to add 2.5 million subscribers during the first quarter of 2022, almost half of the 3.98 million it added in Q1 2021. Meanwhile, analysts were anticipating the figure of 6.93 million in the first quarter, according to StreetAccount estimates.

“Our guidance reflects a more back-end weighted content slate in Q1 ’22 (for example, Bridgerton S2 and our new original film The Adam Project will both be launching in March),” the subscription streaming service and production company said.

This matches the tune that Netflix sang upon entering the fourth quarter. When the company launched new TV shows and movies that had been postponed to the back half of the year, Netflix and analysts had expected a ‘major rise’ in consumers at the end of 2021.

During the reported quarter, Netflix released new seasons of returning shows like The Witcher, You, and Emily in Paris, along with the concluding seasons of one of Netflix’s most popular shows – La Casa de Papel aka Money Heist.

The dystopian Korean thriller –Squid Game, which was a late Q3 release, continued to spread its magic even in the fourth quarter. It helped Netflix garner more views.

Netflix said increased competition from other companies attributed to its slowdown in growth, though in the past, the company had expressed that companies like Apple and Disney will not “materially affect our (Netflix) growth.”

“Consumers have always had many choices when it comes to their entertainment time – a competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering,” Netflix said. “While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched.”

Disney and Roku shares also slid at least 6% during Friday’s Intraday trade.

On the announcement of the quarterly report, the Stock activity for Netflix rose about 618 percent on the Quantale dashboard. It also emerged to be the second most trending stock on the dashboard of Quantale, a real-time stock monitoring tool.

The shares of Netflix plunged to a fresh 52-week low of $ 379.99 over the less-than-expected subscriber growth.

The Netflix stock opened at $400.42.

In December, with an aim to maximize long term revenue, Netflix in India reduced its pricing across all four plans, but still, it faces headwinds in the country as pay-TV pricing is very low there.

On the other hand, last week, Netflix announced price hikes in the United States and Canada. The monthly cost of the basic plan increased by $1 to $9.99 in the United States. The ordinary plan will cost $15.49 from $13.99, while the premium plan has spiked from $17.99 to $19.99.

It came on the heels of readiness by users to invest more in Netflix’s exclusive content. Price hikes may help compensate for slowing consumer growth.

“It’s definitely frustrating for us, the current slower growth,” co-CEO Reed Hastings said during a pre-taped earnings interview. The company reported 221.84 million paid memberships in the fourth quarter, up 18.18 million quarter-over-quarter.

“It’s a dynamic market for sure, it may not be as steady as people think about it in terms of we’re gonna add X number every quarter, every month, every week, but there’s no question that’s the direction the business is going in,” co-CEO Ted Sarandos added.

Netflix reported an operating income of $632 million in the fourth quarter, down 33.75% from $954 million in a year-ago period; on a quarter-over-quarter basis, operating income fell nearly 64% from $1755 million.

For the fiscal’22 first quarter, Netflix expects $1765 in operating income, almost triple fold from its fourth-quarter figures, but around the third quarter of fiscal’21’s numbers.

The operating margin in the period under review remained at a low of 8.2% compared to 14.4% in Q4’20 and 23.5% in Q3’21.

Netflix Gaming:

Netflix also gave investors updates on its push into gaming. The company has been coming out with games based on its popular titles to its subscribers. The new games might help figure out which characters are most popular, which could eventually help shape its content.

“We’re now really getting to learn from all of those games,” COO Greg Peters said.