Netflix (NFLX) started the year on a bad note when it reported a weak outlook for subscription growth.
Last week, on April 19, the streaming giant shocked investors again when it posted a loss in subscribers.
This is the first time in a decade that Netflix posted comparably weak numbers. The stock also fell close
to its all-time historical record. For the weak NFLX stock lost 36.8%.
NFLX stock trades at a 20 times price-to-earnings. Its debt/equity is 0.97 times. Despite macroeconomic
headwinds from losing subscribers in Russia and hyper-inflation pressuring customers to cancel, value
investors may swoop in. What went wrong in the quarter?
The cheap bundling from Apple (AAPL) for Apple TV, HBO Max’s strong offering, and Disney’s (DIS)
Disney Plus is luring customers away from Netflix. Viewers have more choices and are subscribing to
multiple services. They do not have the time to watch from many streams. Therefore, they are canceling
Netflix. Netflix also hiked prices to discourage customers from canceling and returning to binge on
shows.
On the conference call, Netflix said it would crack down on password sharing of legitimate customers. It
will also consider an ad-supported lower-tier service. Both actions are a mistake. The company should
let loyal customers have multiple users. Furthermore, customers do not want ads to save money. They
may watch YouTube for “free” and watch 3-4 ads instead.
Wait for NFLX stock to settle before buying.
