Shares of Netflix Inc. (Nasdaq: NFLX) plunged 21.79% or $110.75 to close at $397.50 on Friday, following the issue of extremely weak subscriber additions guidance for the 1Q 2022. The on-demand video streaming company, however, reported better than anticipated 4Q 2021 earnings. Revenues were in line with estimates.
The Scotts Valley, California-based company reported fourth-quarter revenues of $7.709 billion, an increase of 16% from $6.644 billion in the similar quarter last year. Analysts surveyed by Refinitiv had anticipated the company to report earnings of $7.71 billion for the recent quarter. The increase in revenue was led by an 8% rise in average paid streaming memberships and a 7% growth in average revenue per membership.
For the latest quarter, the company reported a net profit of $607.42 million, or $1.33 per share, an increase from $542.16 million, or $1.19 a share, in the prior-year period. The reported earnings surpassed the $0.82 per share anticipated by analysts polled by Refinitiv.
During Q4 2021, Netflix added 8.28 million subscribers, missing its own projection of 8.50 million – the figure it had reported in 4Q 2020 – to conclude the quarter with 221.84 million subscribers. The StreetAccount estimates called for subscriber additions of 8.19 million.
Specifically, in the US and Canada region, Netflix had added 1.19 million customers. Subscriber additions in the EMEA region were 3.54 million. LATAM and APAC region added 0.97 million and 2.58 million subscribers.
Netflix has clarified that growing competition from rival firms was the leading cause of the slowdown in subscriber additions, contradicting its previous statements that Apple and Disney would have no meaningful impact on growth.
Looking forward, Netflix anticipates achieving 2.50 million subscriber additions in 1Q 2022, a figure considerably less than the 3.98 million additions reported for 1Q 2021. Notably, StreetAccount estimates call for an addition of 6.93 million subscriber additions for the current quarter.
The company, aiming to lure 800 million to 900 million households with either broadband connectivity or pay-TV, stated that it is still initial days in terms of attaining that figure.
Commenting on the slowdown in subscriber additions, co-CEO Reed Hastings stated that the present sluggish growth rate is undoubtedly frustrating for the management.
The company had upwardly revised prices in the US and Canada recently. The monthly cost for the basic plan increased by $1 to $9.99 in the US. Also, the standard monthly plan saw an increase to $15.49, from $13.99. Likewise, the premium plan pricing was changed to $19.99, from $17.99. With this increase, the company’s regular subscription package has become costlier than its competitors.
Looking ahead, Netflix anticipates earnings of $2.86 per share on revenues of $7.90 billion for the quarter. This compares with analysts’ forecast calling for earnings of $3.45 a share on revenues of $8.08 billion.
The mixed quarterly results and extremely weak 1Q 2022 subscriber addition forecast are expected to keep the stock bearish in the days ahead.
The historical price chart indicates that the stock of Netflix is declining after facing heavy sell-off at 575 levels. The next major support is anticipated only near $300. Additionally, the stock is trading below its 50-day moving average, while the stochastics indicator is in the bearish zone. Therefore, we are anticipating the stock to remain in a downtrend in the short term.
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