Thursday saw a more than 8% decline in Netflix’s share price as concerns about a longer road to growth from its new efforts were raised by the video-streaming pioneer’s disappointing revenue increase.
A crackdown on password sharing and the launch of a more affordable subscription tier that includes advertising helped the business attract nearly 6 million customers in the second quarter, exceeding Wall Street’s estimates by almost three times.
Greg Peters, the company’s co-chief executive officer, warned that it would be “several quarters” before the results of those efforts were seen because the quarterly revenue growth and forecast fell short of expectations.
According to Hargreaves Lansdown analyst Sophie Lund-Yates, the market was “realms away” from knowing whether the highly-touted ad tier might become the next cash cow. “Netflix needs to squeeze as much juice as possible from different avenues,” she added.
The business has been competing against Disney+ and Amazon Prime Video in a market beginning to show indications of saturation in the US. Most of the company’s new subscribers are from nations with lower costs.
In addition to having its worst day since 2023, Netflix stock also looked to lose close to $20 billion in market value. The store increased 48% this year and saw its largest trading volume in two months.
Some people are taking advantage of the outcome, according to Jeffrey Wlodarczak of Pivotal Research Group.
Despite this, analysts continued to have a generally positive outlook for the stock, with at least 26 of them raising their price targets in anticipation of the new revenue-generating efforts accelerating revenue growth in the second half of 2023.
The current Hollywood strike might not affect Netflix’s content slate until 2024, giving the firm an advantage over its rivals, given its robust programming schedule.
The corporation also has a sizable global footprint, which gives it access to various non-American programming and protects it from the strike. The popularity of its non-English titles, like “Physical 100,” “The Glory,” and “Alice in Borderland,” has also increased.
“While every other streamer is raising their pricing, Netflix has upped its ad tier. According to PP Foresight analyst Paolo Pescatore, the foundation is being laid for future revenue growth.
He noted that eliminating the cheapest package without advertisements in core areas will benefit the company and should support the dropping average income per user.
As a result of the strike, Netflix on Wednesday increased its 2023 free cash-flow forecast from an earlier estimate of around $3.5 billion to at least $5 billion.
