Netflix Stock (NASDAQ:NFLX) is being hammered this morning following the companies release of their fourth quarter results. The NFLX stock plummeted by 24% at open, after Netflix admitted its streaming competition is beginning to affect the companies growth. The market reaction to the Q4 results is big news, considering it may just be Netflix Stock’s worse day since 2012.
So why are investors jumping off the Netflix hype train, even after the companies swift success in 2021 with Squid Game? This article will breakdown and analyse why the market is reacting so strongly to Netflix’s Q4 earnings.
Netflix reports mixed earnings for Q4
In the fourth quarter, Netflix generated $7.7 Billion in revenues, matching analysts forecasts. With on par revenues, Netflix was able to beat the companies predicted EPS, posting an Earnings Per Share of $1.33. However, the company missed on membership predictions, recording 221.8 Million subscribers (missing by 300,000).
So why are these numbers important? Generally speaking, investors place high expectations on Blue Chip companies like Netflix. With matched revenues and slower than expected subscriber growth, a sell off is more than likely. However, these numbers do not paint a full picture on the current challenges Netflix are facing.
Netflix investors concerned about growing competition
Netflix is a pioneer streaming service which currently dominate the number 1 position in market share in the United States. With such reputation, Netflix investors expect the company to mitigate threats from its growing competition.
Disney+ continues to grow in popularity across the globe and is currently challenging the dominated marketshare of Netflix. As we discussed in our Disney article, some analysts see Disney+ providing a genuine challenge to Netflix marketshare by 2025.
With Amazon Prime, Binge and Stan also growing in popularity, Netflix investors are beginning to feel the pinch. The company touched on competition in its shareholder letter, highlighting that it is impacting Netflix’s marginal growth.
While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched. This reinforces our view that the greatest opportunity in entertainment is the transition from linear to streaming and that with under 10% of total TV screen time in the US, our biggest market, Netflix has tremendous room for growth if we can continue to improve our service.
Is Netflix Stock Oversold following its Q4 performance?
While Netflix Stock (NASDAQ:NFLX) collapsed following its Q4 performance, analysts across the board have maintained a price target above its current trading price of $389. The old saying when it rains it pours is true when a stock tumbles, especially in the current market conditions.
For insight into how Wallstreet value Netflix after its sell off, Canaccord analyst Maria Ripps lowered the firm’s price target on Netflix to $600 following the Q4 release. Ripps noted despite Netflix posting disappointing subscriber growth, Netflix maintains the largest and most diverse original content library among streaming platforms. While the analyst expects further volatility in the short term, she continues to see ample room for growth as entertainment consumption evolves.
The Bottom Line: Netflix Stock Loses $55 Billion Market Cap after Q4 results
Following Netflix Stock’s collapse this morning, investors have wiped off close to $65 Billion in marketshare. Netflix posted on par revenues and better than expected EPS, however this was not enough to keep investors on the boat.
With competition concerns and increasing subscription pricing, investors feel the competition will continue to offer newer streaming alternatives to customers. Despite all this, Wallstreet generally remains somewhat upbeat on Netflix’s growth proposition. As Maria Ripps from Cannacord noted, while the stock will remain volatile in the meantime, there is ample room for growth consumption in 2022.
What do you think about Netflix Stock and its future in an increasingly competitive streaming market? Let us know in the comments below.
The information above is presented as factual information and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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