Netflix founder Reed Hastings speaks on stage at the 2019 New York Times Dealbook on November 6, 2019 in New York City.
Michael Cohen | Getty Images
Netflix’s shares plunged 37% Wednesday morning after the streamer reported gains on Tuesday night that showed it had lost subscribers for the first time in more than a decade. The results and weak outlook prompted a spate of downgrades from Wall Street over concerns about the company’s long-term growth potential.
Netflix said several headwinds are hurting growth, including competition and the easing of pandemic restrictions. The company had been given a significant boost by coronavirus stay-at-home orders as more people sought digital entertainment. But people spent less time on digital platforms as vaccines were rolled out and mandates relaxed.
Slower household broadband growth also played a role in the company’s weak guidance. Netflix estimates that 100 million households share their subscription passwords with other family members or friends, making it harder to grow memberships.
The company planned changes in the pipeline to help growth. It is considering a cheaper ad-supported tier and hints that a crackdown on password sharing is imminent. And while analysts have generally been positive about these changes, most believe it will take a year or two for these changes to make sense.
“While their plans to re-accelerate growth (limiting password sharing and a display model) have their merits, they say they won’t have a noticeable impact until 24, a long time to wait for what’s now a ‘show.’ is history to me. ‘ Bank of America analysts said in a statement Wednesday. The company was one of at least nine companies to downgrade Netflix over the disappointing report.
“Following what can only be described as a shocking Q1 subscriber loss and weak subscriber and financial guidance, we have reduced our subscriber guidance and significantly pushed back our profitability guidance,” Pivotal analyst Jeffrey Wlodarczak wrote in a note Tuesday. The company downgraded the stock from buy to sell.
Analysts at Wells Fargo wrote in a note Wednesday downgrading the stock to an equal weighting that “negative undergrowth and investments to re-accelerate earnings are the nail in the coffin of the NFLX narrative, in our view.”
Shares of several streaming services plunged along with Netflix on Wednesday morning as investors await updates on their growth. Disney shares are down about 5% after the market opened on Wednesday. Similarly, Roku’s stock fell more than 7%, Paramount’s stock plummeted 11.7%, and Warner Bros. Discovery’s stock fell about 5%.
“Gross add activity continues to be weaker than expected, so subscription companies could face similar pressures during this earnings season, although we find that NFLX is unique in that it is much more penetrated, particularly when accounting for password sharing ‘ Wolfe Research said in a Tuesday note. The company maintained its Outperform rating.
– CNBC’s Michael Bloom contributed to this report.