'Growth Stocks' aren't Growing!
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'Growth Stocks' aren't Growing!
As the cost-of-living crisis hits, Netflix suffer as consumers cut back on their expenses.
Counter Cut’s content this month is sponsored by The New Talbot
As the cost-of-living crisis hits, one company suffering as consumers cut back on their expenses is Netflix.
Earlier this year, investors were shocked that Netflix lost 200,000 subscribers and estimated they would lose a further 2 million in Q2.
The stock has dropped 70% so far in 2022, an enormous contrast to their lockdown parade.
In Q1 this year, their subscriber count went down for the first time and Q2 doesn’t look like it will get better. This drop in subscribers has created a snowball effect in the stock where Netflix have had to drop shows, (some I quite liked!) to hedge these sudden losses which is causing more people to unsubscribe.
Increased competition and password sharing are also contributing to the Netflix drop. Netflix estimates that around 100 million households are sharing passwords out of their 200+ million subscriber count. It also doesn’t help when every tech company now has a streaming service to try and get a slice of the Netflix pie.
Netflix will now have to look at strategies to get that subscriber count back up.
One suggestion by the Co-CEO Reed Hastings was to create a cheaper subscription package that will show advertisements. Whilst I would find the adverts slightly annoying, I think this would be a step in the right direction, there would still be the choice to pay for a full subscription, but it appeals to a wider audience for people that perhaps don’t want to pay the current monthly fees.
Will Netflix share price go back to its previous highs?
The price is currently sitting at 189.11 USD, a price it hasn’t seen since 2017 where the subscriber count was half of what it was today. The fact is, Netflix is still huge, but it’s just not growing like it used to. An important note is that the price of Netflix and many other growth stocks were heavily inflated based on their potential to grow and nothing to do with their underlying fundamentals.
In October 2021 the stock was sitting at 690 USD, a price completely based on the hope that the subscriber count would propel to a level that would support this price, a common theme in a lot of tech stocks.
Is this the end of Netflix or will they bounce back, I personally believe the latter of the two, but we’ll have to see what their financials are saying this Tuesday with their quarterly earnings release.
Written by Nial Dixon
Counter Cut’s content this month is sponsored by The New Talbot. Enjoy traditional curried, mixed grills and speciality starters that you won’t find elsewhere. Enjoy an extensive range of drinks from draught beers to delicious cocktails.
