Netflix delivered a solid year of revenue and profit growth but missed its fourth-quarter subscriber forecast and it sent the streamer’s stock spiraling.
The company also signaled toward lighter subscriber growth during the first quarter of 2022, predicting 2.5 million new paid memberships compared to 4 million in the same quarter of 2021.
“…While retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-Covid levels. We think this may be due to several factors including the ongoing Covid overhang and macro-economic hardship in several parts of the world like LATAM,” the company wrote in a letter to shareholders, also pointing out that major titles like the second season of “Bridgerton” won’t launch until the back half of the quarter.
Michael Nathanson, analyst at media research firm MoffettNathanson, said the first quarter has typically sourced between 22% and 43% of Netflix’s aggregate subscriber additions in a calendar year. It means there’s potential that the streamer adds only 6 million to 11 million subscribers in 2022, well below its average of 26.5 million over the past five years.
Netflix also earned downgrades from Barclays, Evercore and Keybanc.
MoffettNathanson for now is only dropping its 2022 subscriber additions estimate for Netflix to around 20 million, citing concerns around Netflix’s ability to consistently produce popular content and the rapid decay of interest in that content due to the binge-watching model.
The analyst firm also sees Netflix’s most-recent quarter as a possible cause for concern for the entire streaming industry. In particular, Nathanson noted the Netflix equity selloff makes it tougher to compare the streaming service bullishly against legacy media company while pointing out some unfavorable Netflix economics.
“In 2021, Netflix posted negative [free cash flow] of -$159 million on revenues of almost $30 billion and global subs of nearly 222 million,” wrote Nathanson. “While media companies have the benefit of fully amortized libraries and built-in marketing platforms, most streaming platform owners have RPUs that are materially lower than Netflix’s global RPU and are just beginning this journey in a more competitive market.”
Lightshed Partners analyst Rich Greenfield addressed the subsequent stock damage companies like Disney took after Netflix’s earnings, telling CNBC there’s likely fear among investors about Disney+ reaching its growth targets.
“People are starting to worry that if Netflix can’t get the growth with this amount of spending, what does Disney have to do with far less content?” he said.
However, Greenfield told CNBC’s “Squawk Box” this morning that despite Netflix’s lower first-quarter guidance, the company is still growing revenue rapidly and that it’s still looking an upside of between 600 million and 800 million subscribers.