Netflix started 2022 with a share price near $600. By the end of April, the price had plummeted to $200. With a significant stock slide such as this, it can be helpful for investors to reevaluate facts about the company to determine if it’s still a good investment.
Subscriber Growth Is Missing Targets
For several years, Netflix has increased its subscriber growth substantially each year by hitting its targets. They accomplish this goal by adding a strong slate of content to the platform, enticing more individuals to subscribe.
Unfortunately, along with significant competition from new services like DirecTV Stream, Paramount+, and others, the new content Netflix has added recently has not resulted in an influx of new subscribers.
In April of 2021, Netflix reported 207.64 million subscribers globally, resulting in 13.6 percent year-over-year growth. However, this increase fell short of their goal by 2 million subscribers as they only added 4 million new subscribers.
In the prior year’s first quarter, the company gained close to 16 million new subscribers. While a significant reason for this growth was due to individuals watching more streaming content due to the pandemic, the inability to reach their 6 million subscriber goal was a warning, especially given the “captive” audience.
Netflix’s bottom line was affected negatively without increased subscriber growth, leading to a lower stock price. This price action will likely continue if they continue to add content and fail to see it help subscriber growth.
Losing Revenue Due To Password Sharing
Research from November 2020 showed that over 50 percent of Netflix users share their passwords with other individuals. This figure is a 19.5 percent increase over another research study from June 2020. Any type of password sharing results in lost revenue for the company. Netflix is aware of users sharing accounts and has started experimenting with pop-up warnings.
In addition, Netflix announced that it intended to charge primary account holders with an extra fee for every “sub-account” they have. Sub-accounts will be created every time a password is shared with one or two people outside the home.
Unfortunately, Netflix isn’t sure how much revenue it can generate from implementing its sub-account pricing globally, likely taking about a year to implement.
Barrier to Adoption
A survey of Americans who use someone else’s password indicated that about 80 percent of them said they would not open a new account if they could not share a password.
According to COO Greg Peters, getting the balance right with this solution will likely take some tweaking as a company doesn’t want to shut down sharing completely. They just want to get revenue associated with that viewing.
Signing an Exclusive Deal With Sony
Sony Pictures signed a deal with Netflix allowing them to become the exclusive streamer of their theatrical releases, starting in 2022. Popular IPs like Morbius, Bullet Train, Uncharted and future sequels to Jumanji, Venom and Spider-Man: Into the Spider-Verse, will be included in the deal. Starz had this same deal with Sony previously but lost out to Netflix.
In addition, films from Columbia Pictures, Sony Pictures Classics, TriStar Pictures and Screen Gems Studios will head to Netflix. The new deal also gives Netflix the first look at Sony’s original movies.
These content development deals are part of Netflix’s extensive global programming strategy for the next five years. Adding more original content may help Netflix gain more market share, which could cause an uptick in the stock price.
A Share Price Discount Was Due After Increasing for 20 Years
At some point, it was inevitable for Netflix’s stock price to pull back as it has been running hot over the last 20 years. It soared from one dollar a share in 2002 to the $600 range in 2021, which is close to a 60,000 percent increase. The company’s stock chart has pulled back to 2017 prices, giving investors a chance to dollar cost average in at a lower price.
