Why Netflix stock crashed and burned Wednesday

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Netflix (NASDAQ: NFLX) were going down in flames on Wednesday, plunging by as much as 39% in morning trading. As of 11:50 a.m. ET, the stock was still down by 36.9%.

The catalyst that sent the streaming pioneer lower was news that its subscriber count actually declined last quarter, the first time that’s happened in more than a decade. 

So what

In the first quarter, Netflix generated revenue of $7.9 billion, up 9.8% year over year, while its earnings per share (EPS) declined by roughly 5.9% to $3.53. 

To put those numbers in context, analysts’ consensus estimates had called for revenue of $7.9 billion and EPS of $2.90. 

The big story, however, was that Netflix shed roughly 200,000 subscribers during the quarter and expects to lose another 2 million in Q2. Netflix cited a number of factors as contributing to the subscriber loss, including inflation, the war in Ukraine (which has slowed adoption of the service in Eastern Europe), growing competition, and password sharing.

Now what

The news certainly isn’t good, but it also isn’t as bad as it might appear at first glance. In the fine print of its investor letter, management provided details of the suspension of its operations in Russia, which played a pivotal role in the quarter’s subscriber decline (italics mine):

The suspension of our service in Russia and winding-down of all Russian paid memberships resulted in a -0.7 million impact on paid net adds; excluding this impact, paid net additions totaled +0.5 million. 

Netflix’s management acknowledged the ongoing challenges and is exploring various measures to reignite its subscriber growth. The primary focus will be on increasing the quality of its programming and recommendations, but the company is also investigating ways to combat password sharing and working to continue its expansion in international markets.

Given its dramatic slowdown in subscriber growth, investors are certainly justified in wondering whether Netflix’s growth story is winding down. Management said it expects to return to — and sustain — double-digit percentage revenue growth and remain free-cash-flow positive in 2022 and beyond.

I, for one, don’t think the sky is falling. The sell-off might represent a compelling opportunity for investors, because this isn’t fade to black for Netflix. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Netflix stock crashed and burned Wednesday appeared first on The Motley Fool Australia.

More reading

• Here’s why the Netflix share price is plunging 25% in after-hours trading
• Netflix investors could be in for a shocker this week
• Why Netflix could be a buy in the coming weeks
• 3 reasons to buy Netflix, and 1 reason to sell

Daniel Vena owns Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

from The Motley Fool Australia https://ift.tt/SGiep9x