The earnings season has started, and Netflix () has gotten off to a bad start in 2022. One day after reporting its first-quarter earnings, NFLX stock has dropped by 35 percent.
Let's begin by understanding what happened and discussing whether or not it's time to invest in the video streaming company.
Netflix Stock: Should You Buy the Dip? Figure 1
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What Happened to Netflix?
For the first time in over ten years, the company recorded a drop in subscriber numbers. During the quarter, more than 200,000 customers had their subscriptions canceled.
This quarter, Netflix had anticipated to introduce 2.5 million new subscribers, with only 2.7 million on the market.
The stock fell 25% on April 19 and 35% on the 20th, causing many analysts to review their forecasts for the NFLX downward.
The stock is trading at the last rate seen in 2018, but would this be a buy signal? We don't think so.
Is the Streaming Industry in Danger?
The streaming market is rapidly expanding and should continue to do so in the coming years. In developing countries, the internet is booming.
Competition can jeopardize companies because of the fact that the market is so divided, therefore this is true with Netflix, which, by increasing prices, is subject to losing subscribers to several other competitors, such as Disney+ and Amazon Prime Video.
What to Expect in the coming months
Netflix has already stated that it is considering cheaper subscription methods for its platform and is courting the possibility of introducing a low-priced tier that would include ads. Despite the fact that HBOMax and Hulu have already adopted this strategy successfully.
Will Netflix's ad revenue help to offset a potential decrease in the average subscription price? Even if the business uses a lower membership tier to increase its user base again, it's possible that its revenue will not grow as it has previously.
Netflix has also announced that it will crack down on password sharing in the United States and Canada. According to Netflix, 30% of households use a shared password to access its content.
Netflix's growth difficulties will not be fixed in the long term, even if it can resolve these problems and sees some growth in the long term.
We Think It's Not Time to Buy, Well Let's Know
Even with a 35 percent drop in just one day, it's hard to justify that NFLX is currently a cheap stock. Netflix, which is considered a growth company, has stopped growing like it used to. It has even lost subscribers.
If the company is able to discover other avenues to monetize its existing subscribers, investors should rethink whether the company is a good buy.
This is not investment advice, according to disclaimers. This author may be long one or more stocks mentioned in this report. Aside from this, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for assisting MavenFlix)