Netflix Inc shares lost over a third of their value on Wednesday after the company reported its first drop in subscribers in a decade, leaving Wall Street questioning its growth in the face of fierce competition and post-pandemic viewer fatigue.
The streaming pioneer’s shares fell 37% to $220.40 and were headed for their worst day in nearly 18 years if the losses hold. More than a dozen analysts rushed to temper their views on a stock that has been a red-hot market performer in the past few years.
“Netflix Inc is a poster child for what happens to growth companies when they lose their growth,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.
“People buy growth companies because they think their cash flow is going to grow so they’re paying ahead for anticipating that. When a stock like this tumbles, people looking for growth back away quickly.”
Brokerage J.P.Morgan made the most aggressive move by halving its price target to $305 – well below the stock’s median Wall Street target of $400.
Anmuth also slashed his estimate for 2022 net subscriber additions by half to 8 million.
The share slump could erase the stock’s gain over the past two years, when its business thrived as new customers joined its platform to ride out the lockdowns.
In an effort to calm nerves, company executives told analysts on Tuesday they were looking to offer an advertisement-based tier over the next year or two and promised a crackdown on password sharing – a long-running problem for the service.
Netflix’s rivals already have ad-driven versions or are considering one – HBO Max offers ad-supported subscription.
Demand for fresh and engaging content is also increasing, forcing Netflix and others to think about bigger budgets for production even as costs increase in an inflationary environment.