almost 2 years ago • 3 mins
Netflix has had a horrible week and an even worse year, and it’s not the only stay-at-home stock that investors can’t seem to tear their eyes away from.
✍️ Connecting The Dots
Netflix was the poster-child for pandemic winners, with viewers rushing to sign up to the streaming giant’s services to pass the time. But as the pandemic receded and restrictions eased, the surge in new subscriptions started to wane. The first hint of a slowdown appeared at its fourth-quarter results in January, when Netflix said it was expecting to add 2.5 million new subscribers in the first quarter – way below the 6.3 million analysts were forecasting, and a major drop-off from the previous quarter’s 8.3 million.
This week, Netflix reported results again, and we got to see how those expectations stacked up against reality. It was ugly: Netflix lost 200,000 subscribers – the first drop in customers for the streamer in over 10 years. Worse still, Netflix said it’s expecting to lose another 2 million subscribers this quarter – a far cry from the 2.4 million analysts were expecting it to add.
To paraphrase that old saying: disappoint me once, shame on you; disappoint me twice, shame on me. After being let down a second time, investors had had enough: they sent Netflix’s shares down 35% on Thursday, bringing its decline so far this year to more than 60%. But Netflix can at least take some comfort knowing it has company: fellow stay-at-home stocks Peloton, Zoom, and DocuSign are all down by 40% or more in 2022, as the pandemic-era surge in user sign-ups and growth stock fervor fades from view.
1. Netflix’s epic plunge offers some valuable warning signs.
First, it confirms that many investors were pricing pandemic winners on the implicit assumption that lockdown behavior would continue forever. Second, it shows just how much of Netflix’s value was tied to its future profit. It’s a classic “long-duration” stock: very sensitive to interest rate changes, as well as slight adjustments in future growth assumptions. Third, it highlights the fallacy that each of the FAANG stocks – Facebook, Amazon, Apple, Netflix, and Alphabet – will achieve individual dominance. In truth, they’re all ruthlessly competing with each other: Amazon, Facebook, and Alphabet are all trying to dominate the digital advertising market, Amazon and Apple are coming after Netflix’s streaming business, and so on. Put simply, one’s success could well come at the expense of another’s.
2. We’re starting to see signs of “demand destruction”.
Consumer spending is by far the biggest contributor to the US economy, and economists are nervously looking for any signs that higher prices are starting to chip away at demand. Netflix’s decision to raise prices in the US and Canada in January might be exactly that: the move cost it 600,000 subscribers last quarter. And it’s not just services companies seeing demand wiped out by higher prices: retailer Bed Bath & Beyond and grocer Albertsons both partly blamed their recent sales slowdowns on inflation.
🎯 Also On Our Radar
Coinbase launched its long-awaited social NFT marketplace – which looks like a cross between Instagram and OpenSea – to a small number of users on Wednesday. The service could be the answer to Coinbase’s growth problems, or it could… not: the launch comes at a time when NFT trading volumes have been nosediving, with sales on OpenSea – the world’s biggest NFT marketplace – down 67% over the past 30 days, according to DappRadar.
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