I now need to add Netflix to my “imploded stocks”

Shares have crashed 68% since November. $205 billion has evaporated. FANGMA without the N.

By Wolf Richter for WOLF STREET.

The latest N of the glorious old FANGMAN – Facebook, Amazon, Nvidia, Google, Microsoft, Apple, Netflix – has now earned a place in my growing “imploded stocks” which I discuss periodically for the pleasure of those who have been there. this during the dotcom bust and knowing viscerally how a stock market bubble ends.

Netflix Stocks [NFLX] plunged 35% today, following its dismal quarterly earnings report last night, and closed at $226.19. Three months ago, after a dismal earnings report, shares plunged 24%. Another earnings report is due in three months. From their peak on Nov. 17, 2021, in just five months, stocks have already crashed 68% and are now back to their original January 2018 level. The stock is now poised to disprove the saying of WOLF STREET, “Nothing goes wrong in a straight line”:

The biggest culprits were a loss of subscribers for its streaming services globally (-200,000 subscribers), particularly in the US and Canada (-640,000 subscribers) and Russia where it suspended operations ( -700,000 subscribers).

To top it off, it said it expects to lose an additional 2 million subscribers in the current quarter (Q2), as analysts expected growth of 2.55 million subscribers. Gone are the days when the company grew its subscribers at the rate of 25 million a year. Now he can’t even hang on to it.

Subscriber growth comes hell or high water was the name of the game for Netflix, given that it sells subscriptions. And now that subscriber growth idea just fell apart.

OMG, the competition!

As the cause of this subscriber fiasco, he listed every conceivable problem in the world, from “rising inflation” and “slow economic growth” to Russia’s invasion of Ukraine, through the competition.

It turns out that competition “creates headwinds to revenue growth.” He said that “over the past three years, as traditional entertainment companies have realized that streaming is the future, many new streaming services have also been launched.”

And the shares of its competitors also took a bit of a beating today for fear of losing subscribers:

  • World Paramount [PARA]: -8.6%
  • Roku [ROKU]: -6.7%
  • Discovery of Warner Bros. [WBD]: -6.0%
  • Walt Disney Co. [DIS]: -5.6%
  • Amazon [AMZN]: -2.6%
  • Comcast [CMCSA]: -1.5%
  • Apple Inc. [AAPL]; -0.1%

If you don’t know what to do, make two U-turns.

Netflix will fight these ills of competition and subscriber losses with two possible shifts in strategy: a potential dive into advertising and a crackdown on password sharing.

The company said it was considering getting into advertising, which is precisely what CEO Hastings has been rejecting and brushing off all these years. Hastings said in an interview that they will try to figure it out over the next year or two.

As for cracking down on password sharing, Hasting said they’ve been working on it for two years. In his letter to shareholders, Netflix said about 100 million additional non-paying households use the accounts of its 222 million paying subscribers. A crackdown on password sharing would be an interesting turn of events after years of dismissing this well-known problem as largely irrelevant.

Hilarity erupted among analysts.

After the stock crashed 68%, and not a second earlier, analysts slumped, downgrading the stock and lowering their price targets. You just can’t make this stuff up.

They all should have put a sell rating on the title in November to get their clients out of it in time. Anyone who took these analysts seriously before today has been wiped clean by events. For example:

UBS analysts lowered their rating on the stock to neutral from “buy” before the collapse, and they lowered their price target from $575 to $355 per share.

Pivotal Research downgraded its rating on the stock two notches from long to short and ignored neutral, and more than halved its price target from $550 to $235.

Wells Fargo analysts lowered their rating on the stock to equal weight to overweight and halved their price target to $300.

JP Morgan analysts, noting that “there isn’t much to excite over the next few months beyond the much lower new share price,” lowered their rating from overweight to neutral. and more than halved their price target from $605 to $300.

The 206 billion dollars evaporated.

In dollars, Netflix’s market capitalization plunged to just $100 billion today. Since the peak in November, $206 billion has evaporated. It is money that shareholders thought they had and no longer have. So we have to start dismantling the old glorious FANGMAN. Now it’s just FANGMA without the N.

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