Streaming giant Netflix’s (NASDAQ:NFLX) stock is down 20% today after the company warned of slowing subscriber growth when announcing its latest quarterly results.
What happened?
Netflix said it expects to add just 2.5 million subscribers this quarter, a number that is well short of Wall Street’s estimates. It would also mark the slowest start to a new year for the company in more than a decade.
NFLX stock fell as much as 20% in after-hours trading, erasing about $45 billion in market capitalization. It seems that investors will have to adjust to a new era of slower growth for the Los Gatos, California-based company.
What Happened With NFLX Stock
Netflix said it added 18.2 million customers in 2021, down 50% from the record subscriber growth it achieved in 2020 when people were in lockdown. The company is forecasting that the slowdown in its subscriber growth will continue at least for another quarter, with the outlook for the current first quarter of 2022 missing Wall Street’s projection for 6.26 million new subscribers. Netflix reiterated its confidence in the long-term prospects for its business but said growth “has not yet re-accelerated to pre-COVID levels.”
However, the report wasn’t all bad. Netflix said that in the fourth quarter, 8.28 million customers signed up. That number beat the Wall Street estimate, but missed its internal estimate for 8.5 million. Its earnings per share came in at $1.33, a nice beat of estimates for 82 cents. Lastly, revenue matched expectations for $7.71 billion.
Why It Matters
Netflix’s slowing subscriber growth portends bad things for streaming companies and for stocks that performed well during the earliest months of the Covid-19 pandemic. Other streaming stocks, such as Roku (NASDAQ:ROKU), also fell after Netflix announced its fourth-quarter numbers. Some analysts are saying that today’s steep drop in NFLX stock marks the end of the bull run for stay-at-home stocks.
As for Netflix itself, the company acknowledged in its Q4 report that it is facing growing competition in the streaming space and that its growth has plateaued in North America. In 2021, Europe and Asia proved to be Netflix’s most important markets. The company said it added 7.14 million customers in Asia and 7.34 million in Europe, the Middle East and Africa last year. This comes after news last week that Netflix will be raising prices in the U.S. and Canada.
What’s Next for Netflix
Netflix stock, which had been under pressure before its fourth-quarter results were released, is going to get hammered today. Even before today’s 20% decline, NFLX stock was down 15% through the first three weeks of trading this year.
However, long-term investors should remember that Netflix remains the worldwide leader in streaming and has deep pockets from which it can invest in new content. Netflix’s share price remains up more than 250% over the past five years. While it’s going to be painful in the short term, the company is by no means down and out. Look past news of slowing subscriber growth, and Netflix actually beat Wall Street forecasts for its latest earnings.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
