Netflix shares fell 35 per cent on Wednesday, in a selloff that wiped out $54 billion (€50 billion) in market value, after it reported a surprise decline in its subscriber base.
Netflix closed at $226.19 in New York, extending its drop this year to 62 per cent making it the worst performing stock in the S&P 500 and the tech-heavy Nasdaq 100 indexes. The shares posted their biggest drop since October 2004.
California-based Netflix said late on Tuesday its decade-long run of subscriber growth had drawn to an end in the first quarter of 2022 and that it had become “harder to grow membership” in many markets.
The streaming company projected in its earnings update that subscriber numbers would drop by another 2mn in the current quarter, having already fallen about 200,000 in the previous three months.
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The “sea change quarter” prompted JPMorgan to cut its recommendation on Netflix from “overweight” to “neutral”, with analysts at the US bank flagging up concerns over account sharing, market saturation and mounting competition.
"Those who have followed Netflix know that I've been against the complexity of advertising, and a big fan of the simplicity of subscription," said Netflix chief executive Reed Hastings. "But, as much as I'm a fan of that, I'm a bigger fan of consumer choice."
Netflix offered a gloomy prediction for the spring quarter, forecasting it would lose 2 million subscribers, despite the return of such hotly anticipated series as Stranger Things and Ozark and the debut of the film The Grey Man, starring Chris Evans and Ryan Gosling.
Mr Hastings told investors that the pandemic had "created a lot of noise," making it difficult for the company to interpret the surge and ebb of its subscription business over the last two years. Now, it appears the culprit is a combination of competition and the number of accounts sharing passwords, making it harder to grow. "When we were growing fast, it wasn't a high priority to work on," Mr Hastings said of account-sharing in remarks during Netflix's investor video. "And now we're working super hard on it."
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Netflix's announcement also hit shares of other television and film subscription companies. Walt Disney, owner of the Disney Plus streaming service, fell more than 5 per cent in pre-market trading, while streaming platform and hardware business Roku dropped about 8 per cent. Music streaming service Spotify slid more than 4 per cent before the US open.
Streaming services and stay-at-home stocks had “lost a lot of value over the last few months”, said Patrick Armstrong, chief investment officer at Plurimi Group. “The market was expecting this but nobody expected the Netflix subscriber losses to be as dramatic as they were.”
– Copyright The Financial Times Limited 2022. Additional reporting Reuters, Bloomberg
