Why Is Netflix Stock Falling? And Can NFLX Shares Recover?

  • Netflix (NFLX) stock is down slightly today after reports that the company’s new ad-supported subscription tier hasn’t performed well in its first month.
  • According to a report, the $6.99 ad-embedded tier only captured 9% of signups in November.
  • NFLX stock is down more than 50% year-to-date (YTD).
Netflix (NFLX) app open on a phone screen
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Netflix (NASDAQ:NFLX) stock is in the red today on news that its new ad-tier subscription has started off slower than expected. What do you need to now about NFLX stock today?

Well, a month after launching a new $6.99 ad-supported subscription tier, it’s clear that Netflix’s latest money-making effort is a bust so far. Figures released Tuesday show the new, cheaper subscription option received the lowest number of signups compared to other plans — and it wasn’t even close.

According to Antenna, a subscription analysis company, Netflix’s new $6.99 option accounted for only 9% of signups in November. This is compared to the $9.99 ad-free, basic plan, which received 41% of signups, 24% for the $15.49 standard and 25% for the $19.99 premium plan.

Indeed, since launching the ad-integrated options on Nov. 3, it seems the cheaper, ad-based alternative has failed to capture the interest of viewers. With that said, one company spokeswoman believes it’s a bit too early to make any definitive claims over the program’s success.

“There are a number of inaccuracies in this reporting. It’s still very early days for our ad supported tier and we’re pleased with its launch and engagement, as well as the eagerness of advertisers to partner with Netflix.”

Ad integration has been a controversial point for Netflix practically since the idea first started gaining steam. After the company reported net losses in its subscriber base in the first quarter and Q2 this year, it seemed the legacy streaming service felt it the right time to try out some alternative revenue capturing models.

Reasonably so, when Warner Bros. Discovery (NASDAQ:WBD) introduced a $9.99 ad-supported tier for HBO Max in June 2021, the subscription option accounted for 15% of new signups in its first month in the United States.

It seems like Netflix is trying to catch lightening twice. Will it succeed?

Will NFLX Stock Make a Comeback?

Netflix’s troubles this year have pushed its share price to historic lows. NFLX stock is down more than 50% year-to-date (YTD), in no small part due to the company’s surprise loss in subscribers in the first half of the year. Heading into 2023, Netflix’s ability to add to and maintain its customer base will likely make the difference for whether shares recover lost ground or sink further.

Unfortunately, it doesn’t look like ad-imbedded subscription options are the savior the company was hoping for. Last week, Digiday reported that Netflix is permitting advertisers to essentially back out of their deals for yet unaired ads, due to the new tier’s limited popularity. NFLX stock fell almost 9% on the report, according to Barron’s.

Analysts remain split on the profit potential within the new tier. Some argue it may be several quarters before the new subscription option raises Netflix’s revenue. Others are less optimistic toward the program. Benchmark analyst Matthew Harrigan believes Netflix is charging advertisers too much compared to competitors. Others have noted the lower-tier option doesn’t include a notable number of movies and TV shows, including recent hits like Bullet Train which has dominated the platform’s top 10 since its release.

“If this doesn’t work, I think the stock will suffer because part of the recovery story for Netflix stock is getting this advertising tier to work,” said Macquarie Group analyst Tim Nollen on Monday.

On the date of publication, Shrey Dua did not hold (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.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2022/12/why-is-netflix-stock-falling-and-can-nflx-shares-recover/.

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