Ding Dong The Bulls Are Dead: Netflix Craters 25pc on Earnings

I expected earnings season would crush stocks and Netflix is the latest example.

Netflix Loses 200,000 Customers, First Decline in a Decade

The streaming service lost 200,000 customers in the first quarter, according to a statement Tuesday, the first time it has shed subscribers since 2011. Netflix also projects it will lose another 2 million customers in the current second quarter, setting up its worst year ever as a public company.

Investors, analysts and Hollywood executives had been bracing for the company to report a sluggish start to the year, but Wall Street still expected Netflix to add 2.5 million customers. The shares, already down more than 40% this year, tumbled as much as 24% to $265.11 in after-hours trading.

Netflix management pointed to four causes, including the prevalence of password sharing and growing competition. The company said there are 100 million households that use its service and don’t pay for it, on top of its 221.6 million subscribers. The company is experimenting with ways to sign up those viewers.

Consumers will start cutting back because of inflation. This sentence in Netflix's investor letter cannot be overemphasized:

Co-Chief Executive Officers Reed Hastings and Ted Sarandos had dismissed the company’s recent slowdown in growth as a speed bump related to the pandemic, which accelerated its growth in 2020. But its subscriber acquisition has slowed for a year and a half, and the company hasn’t reverted to pre-pandemic levels.

“The big Covid boost to streaming obscured the picture until recently,” the company wrote in its letter.

Most of the S&P 500 outside of materials and energy benefited from a big inflation boost that obscured the picture. Reality will start emerging via margin pressure.

As for NFLX, there is a gap at $227 that sure looks like a likely destination if the afterhours drop holds into Wednesday trading.