Analysts Weigh in Following Netflix’s Black Tuesday Financial Report

On the heels of Netflix’s underwhelming first-quarter fiscal results, which included the loss of 200,000 subscribers, Wall Street reacted decisively, shedding $40 billion off the streamer’s market valuation in aftermarket trading April 19.

Netflix shares continued to slide April 20, down more than 35% in midmorning trading. Indeed, more than 80 million shares traded hands before noon — almost 10 times the daily average — as investors looked to cut losses as Netflix said it expects to lose 2 million subs in the current quarter ending June 30.

Among analysts, the consensus suggested a collective “told-you-so” mindset, with experts contending Netflix shares have been overheated for a while. Even co-founder, co-CEO Reed Hastings sending up a trial balloon about a future lower cost ad-supported subscription plan did little to offset the Wall Street bears.

“It is likely that Netflix is ‘dead money’ for at least another quarter,” Michael Pachter, Wedbush Securities media analyst and longtime Netflix bear, wrote in a note.

Pachter said the decline in subscribers coupled with guidance for an even greater decline is likely to keep optimists away until there is some evidence that subscribers will once again grow.

“Should Netflix roll out an ad-supported tier, the stock will likely respond favorably, but we expect management to test the concept for at least several quarters before announcing a major change,” Pachter wrote, adding he would “remain on the sidelines” until there is evidence that Netflix is a “growth company” once more.

Eric John, VP of media center for IAB, said he is surprised Netflix waited so long to consider an ad-supported option — especially considering Disney’s decision to offer the option this year.

“The streaming business is a hit-driven enterprise where consumers expect value every time they open the app, and when the cancel button and the competition is a click away,” John said in a statement. “The cards were on the table when we saw in their Q1 earnings letter: ‘Added competition may be affecting our growth some.'”

J. Christopher Hamilton, assistant professor of television, radio and film at Syracuse University, said the nosedive in Netflix market valuation stocks is not surprising, and that quick action is needed to reverse this course.

“Netflix is no longer the disrupter it used to be because its tactics have been duplicated by its competition (binge viewing, premium programming, data analytics, etc.),” Hamilton said. “The company is still in the lead in terms of subscribers, but it won’t hold that for long if they don’t innovate quickly.”

But innovation in today’s streaming ecosystem includes new challenges such as sports rights, video games and gambling.

Andre Swanston, SVP of media  and entertainment at Transunion, said Netflix in recent months has failed to keep up with evolving consumer demands, which he said include live sports. Competitors Paramount+, Amazon Prime Video, Peacock, HBO Max and ESPN+ are all incorporating growing amounts of live sports.

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“Netflix only has one touchpoint to the consumer,” Swanston said. “Its competitors have a better understanding of the consumer’s lifestyle (ecommerce, live events, sports, etc.,) and how to best engage with them.”

The analyst believes the streamer’s foray into mobile gaming will go nowhere. Swanston says Netflix’s gaming competitors have market advantage, legacy titles, own more publishing studios, and exhibit a clear metaverse strategy.

“It is not yet clear how [Netflix’s gaming] strategy will actually come together,” he wrote. “Just because they have popular shows/movies doesn’t necessarily mean those titles will translate to popular games.”