Netflix stock plunges 34% following shocking loss of subscribers

Netflix Founder Reed Hastings speaks onstage at The New York Times Dealbook 2019 on November 06, 2019 in New York City.

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Shares of Netflix plunged 34% on Wednesday morning after the streamer announced earnings on Tuesday night that showed it had lost subscribers in its most recent quarter. The results led to a wave of Wall Street downgrades over fears of the company’s long-term growth potential.

Netflix said several headwinds were impacting growth, including competition and the easing of pandemic restrictions. The company had been given a huge boost by coronavirus stay-at-home orders as more people sought out digital entertainment. But people spent less time on digital platforms as vaccines rolled out and mandates eased.

Slowing household broadband growth also played a role in the weak forecast. Netflix estimates that 100 million households share their subscription passwords with other family members or friends, making it harder to grow memberships.

The company has implemented pipeline changes to help drive growth. He’s considering a low-cost ad-supported tier and suggested a crackdown on password sharing is coming. And while analysts generally seemed positive about these changes, they mostly think these changes will take a year or two to meaningfully implement.

“While their plans to re-accelerate growth (restrict password sharing and an advertising model) have merit, by their own admission, they won’t have a noticeable impact until 24, a long wait on which is now a ‘show me story’,” Bank of America analysts said in a Wednesday note. The company was one of at least nine companies to downgrade Netflix on the disappointing report.

“After what can only be called a shocking lack of subscribers in the first quarter and weak subscriber and financial guidance, we have reduced our subscriber guidance and significantly pushed back our profitability guidance,” wrote Pivotal analyst Jeffrey Wlodarczak in a Tuesday note. The company downgraded the stock to sell to buy.

Wells Fargo analysts wrote in a Wednesday note that downgraded the stock to equal weight that “negative undergrowth and investments to re-accelerate earnings are the nail in the NFLX narrative coffin, in our view. “.

Shares of several streaming services plunged Wednesday morning along with Netflix as investors await updates on their growth. Shares of Disney were down about 4% after markets opened on Wednesday. Similarly, shares of Roku fell about 2.8%, shares of Paramount fell 8% and Warner Bros fell about 5%.

“Raw adds activity continues to be weaker than expected, as such subscription companies may face similar pressures throughout this earnings season, although we note that NFLX is unique in this meaning it’s much more penetrated, especially when accounting for password sharing,” Wolfe Research said. in a Tuesday note. The company maintained its outperform rating.

— CNBC’s Michael Bloom contributed to this report.

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