Netflix (NFLX) shareholders are likely wishing they had tuned out after an abysmal earnings release on Thursday evening.
While the Los Gato, California-based streaming giant actually bested top-line estimates set by analysts and met the expectations for revenue, its disappointing subscriber figures and weak guidance left shares struggling even into Friday's trading day.
"For Q1 2022, we forecast paid net adds of 2.5 million vs. 4.0 million in the year ago quarter," CEO Reed Hastings told investors on Thursday evening. "While retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-Covid levels."
He cited Covid and macroeconomic issues as the most likely culprits for sluggish growth into the year. Yet, as the stock continues to wobble into Friday's trading day, it seems the excuses are not being bought by the broader market.
The underlying issues, however, driving the weaker guidance are arguably the most troubling aspect for investors.
Headlining these issues causing the stock to crater after earnings is the acknowledgment of competition, which of course raises the specter of not only Disney (DIS) , the awaited merger of Discovery (DISCA) and Warner Media, ViacomCBS (VIAC) , and Comcast (CMCSA) , but such deep-pocketed peers as Amazon (AMZN) and Apple (AAPL) that are pursuing streaming dominance in their own right.
"Consumers have always had many choices when it comes to their entertainment time - competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering," CEO Reed Hastings said in a letter to shareholders.
While he added that he remains confident in Netflix's ability to maintain its prime position, a noticeable impact on marginal growth was noted, suggesting that Netflix's crown is not quite as safe as it once was.
This was a sentiment echoed by Keith Zubchevich, CEO at online video optimization and analytics firm Conviva, who commented that Netflix is at a turning point in its growth story.
"The streaming market is massive and its competitive and there are a number of great company out there making great content," he told Real Money. "I would love to hear someone say that Netflix's market share is ever going to increase back to previous levels. I just don't think that they can set the narrative that they're going to start gaining share again."
Zubchevich was also keen to note that consumers are only going to spend so much on streaming apps overall, making the competition for wallet share a hotly contested one.
In this context, dichotomous moves by HBO Max and Netflix could be concerning.
In just the last week, the AT&T (T) -owned Warner Media announced that new subscribers will be able to get a significant discount on streaming services, while Netflix advised investors that prices in the U.S. and Canada are on the rise.
To be sure, as profits become more important and production budgets remain quite big, there is reason to applaud the move to add more meaningfully to revenue.
"Growth is not going to be driven not only by new customers, but increasingly by adding price," Mark Boidman, Managing Director at Solomon Partners, told Real Money. "Even a small increase in price can really help the bottom line."
He advised that the issue with the company has been its cash burn for quite some time, but the company appears to have turned a corner. As competition heats up, this healthy add to the balance sheet should not be discounted.
"Just at a high level, this could add about $1 billion in new revenue to the bottom line," Boidman concluded. "In the U.S. and Canada it is really important for them to show profits on the users, whereas they can still grow in Asia, for example."
As such, Boidman was not overly dour on the price increases and held out hope on the subscriber addition story, especially abroad.
Sayonara to Stay-At-Home?
That said, the broader picture may be a telling one for many of the stocks that counted themselves as the big winners amid the stay-at-home lifestyle driven by Covid-19. Without a doubt, Netflix was one of the biggest beneficiaries of this rapid lifestyle change.
One need look no further than Peloton's (PTON) incredible fall to gather the market's general sentiment on the stalwarts of the stay-at-home trade. Indeed, just as Peloton saw its stock plummet nearly 25% on a reported production halt, so too is Netflix falling fast on consumers apparently getting outdoors once again and turning off the television.
The question of Omicron impacts remains an issue that hangs over these types of stocks as an idiosyncratic potential catalyst, but the general fatigue of many populations with lockdown-style living is something to consider.
"When we start to think about how the post-pandemic consumer will spend their leisure time, it's highly likely that their overall consumption of screen time will recede dramatically as people venture back out into in-person social situations when it is safe to do so," Chelsea Wiater, Portfolio Manager from EFG New Capital told Real Money. "In that environment Netflix, as well as the streaming industry at large, will likely experience a period of subscriber disruption that may very well wind up with another service assuming the [number one] spot."
The multiple could still come in quite a bit, as people begin to go out once again. Today's trading is certainly indicative of that possibility.
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