Reed Hastings, founder, Netflix, spoke on stage at the 2019 New York Times Dealbook on November 6, 2019 in New York City.
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Shares of Netflix fell 37% on Wednesday morning after the streamer reported gains on Tuesday night, which showed that it has lost subscribers in its last quarter and gave a weak outlook. The results led to a wave of downgrading from Wall Street due to concerns about the company’s long-term growth potential.
Netflix said several cross-winds are affecting growth, including competition and easing pandemic restrictions. The company was significantly boosted by coronavirus-based home stay orders as more and more people searched for digital entertainment. But people spent less time on digital platforms as vaccines unfolded and mandates eased.
The slower growth of household broadband also played a role in the company’s poor outlook. Netflix estimates that 100 million households share their subscription passwords with other family or friends, making it difficult to increase membership.
The company outlined changes to the pipeline to contribute to growth. He is considering a cheaper level supported by advertisements and suggests that repression against password sharing is imminent. And while analysts seemed generally positive about these changes, they mostly believed that it would take a year or two for them to be meaningfully implemented.
“Although their plans to re-accelerate growth (limiting password sharing and advertising model) have merit, they admit that they will not have a noticeable impact until the 24th, waiting a long time for what is now” show me a story “,” Analysts from Bank of America said in a note on Wednesday. The company was one of at least nine companies that downgraded Netflix because of the disappointing report.
“After what can only be called a shocking loss of subscribers in the first quarter and weak subscribers and financial guidance, we lowered our subscriber forecasts and significantly withdrew our profitability forecasts,” Pivotal analyst Jeffrey Vlodarchak wrote in a note Tuesday. The company downgraded the shares to sell them on purchase.
Wells Fargo analysts wrote in a note on Wednesday that downgraded the stock rating to an equal weight that “negative growth and investment to re-accelerate earnings are the highlight of the NFLX storyboard, in our opinion.”
Shares of several streaming services plunged on Wednesday morning along with Netflix as investors awaited updates on their growth. Shares of Disney fell about 5% after the opening of markets on Wednesday. Similarly, Roku shares fell about 7%, Paramount shares fell 11.7% and Warner Bros. Discovery fell about 5%.
“Gross supplement activity remains softer than expected, as such, subscription companies could see similar pressure this season of profits, although we note that the NFLX is unique in that it is much more pervasive, especially when password sharing is reported, “Wolfe Research said in a note Tuesday. The company kept its rating better.
– Michael Bloom of CNBC contributed to this report.