Investors and analysts are reacting extremely negatively to Netflix reporting its first loss of subscribers since 2011. Even worse, the Los Gatos, California-based company forecast that it expects to lose another 2 million customers in Q2.
Before today, NFLX stock had fallen 42% in the year to date as the streaming giant struggles with increased competition and declining viewership.
What Happened With NFLX Stock
Analysts on Wall Street expected Netflix to add 2.5 million customers in the first quarter. Instead, the company reported its first loss of subscribers in more than a decade. Netflix blamed the loss on the fact that there are an estimated 100 million households that use its service and don’t pay for it because they share a paying customer’s password. Rising competition from streaming services such as those from Disney (NYSE:DIS) and Amazon (NASDAQ:AMZN) are also impacting growth.
Specifically, Netflix announced that it lost customers in three of its four regions, including more than 600,000 in the U.S. and Canada. Russia’s invasion of Ukraine cost the company another 700,000 customers. Asia was a lone bright spot as Netflix added more than 1 million customers in that region.
First-quarter revenue at Netflix grew 9.8% to $7.87 billion, missing analysts’ estimates. Profit, at $3.53 a share, beat projections of $2.91. For the current quarter, Netflix predicts sales will grow to $8.1 billion.
Why It Matters
Netflix’s troubles portend bad things for the streaming giant. Analysts are rushing to downgrade their price targets on the stock today as it becomes clear that growth is decelerating. Netflix announced a series of measures it plans to take to right its ship, including lowering subscription costs, adding advertisements on its platform and cracking down on password sharing.
Additionally, Netflix’s disappointing earnings are weighing on shares of other streaming stocks. DIS stock is down 5%, while Warner Bros. Discovery (NASDAQ:WBD), the owner of HBO Max, is down almost 6%. As the streaming market becomes increasingly crowded, companies are having to compete more aggressively for customers, while also spending heavily to develop must-see content.
What’s Next for Netflix
NFLX stock is going to take a beating today as investors exit their positions in the once high-flying stock. A winner during pandemic lockdowns, Netflix stock has now given up all the gains it made over the past two years and is trading at a level last seen in summer 2019. Whether the stock can rebound remains to be seen. But for now, Netflix looks to be in the doghouse with investors and analysts.
On the date of publication, Joel Baglole held a long position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.