Netflix has been the leader in the streaming video market. But the price of Netflix stock has been on a roller coaster ride since reaching a record peak during intraday trading in November 2021 and then dramatically plunging by 45% by the third week of January 2022. Despite taking a commanding lead in the market, Netflix stock price tanked after the company’s disappointing projections for the first quarter. The company’s stock is at its lowest since the initial shutdown days due to the Covid19 pandemic in April 2020. The price decline has been so steep that it might give an impression to Netflix investors that there was no pandemic ever in recent times.
Netflix stock – The boom time and the gloom
It was a boom time for Netflix’s business during the Covid19 pandemic as the subscriber base grew phenomenally. It started in 2020 and continued through 2021, when most people had to stay indoors. In 2020, the company added more than 36 million subscribers, and in 2021 the number of new subscribers was 18.2 million. November 19, 2020, was an unforgettable day in Netflix’s history as the stock price of Netflix crossed $700 to create a record. The surge in the share prices happened two months after Netflix released the South Korean action show ‘Squid Game’, which became the biggest ever series of the company. Most likely, the popularity of Squid Game impacted the stock prices but could not prevent the calamity that followed and became the staple of Netflix stock news.
The fourth-quarter earnings reporting of Netflix sent shockwaves through the market. More trouble was in store as the company’s projection of adding only 2.5 million subscribers in the first quarter of 2022 was far below the analysts’ expectations of 6.93 million.
Fundamental analysis of the company’s stock
During the fourth-quarter ending in December 2020, Netflix added 8.28 million subscribers for its streaming services, slightly below the goal of 8.5 million that the company had set. But, the number was slightly higher than Wall Street’s projected target of 8.23 million. However, during the first quarter of 2022, the company hopes to add only 2.5 million streaming subscribers against the consensus estimate of 5.8 million. Following the news, the stock price of Netflix plummeted drastically by 21.8% and, during the first trading session, closed at $397.50 on January 20.
In the fourth quarter, Netflix recorded sales of $7.71 billion, and EPS was $1.33. The increase in earnings, and sales, year-on-year, was 12% and 16%, respectively. The EPS was much higher than the 83 cents on sales of $7.71 billion as estimated by the analysts.
As per projections for the first quarter, the company hopes to achieve sales of $7.9 billion with an EPS of $1.33 per share. That would translate into a 10% increase in revenue, year-on-year, but a decline of 24% in Netflix stock earnings per share.
Subscriber growth drives the Netflix business
To understand if it would make sense to buy Netflix stock, you must pay attention to what drives the business. Subscriber growth drives the streaming business, and over the past few years, the company’s focus has been on growing the subscriber base globally. The company wants to build a competitive track with scale. Across the world, Netflix has been investing heavily in original content production in the local language. The approach is in sync with the business dynamics and the stock performance, which directly relates to the net subscriber additions.
As reported in the fourth quarter ending, Netflix’s global subscriber base touched 221.8 million, of which Canada and The US account for 34% of the subscriber base.
Besides the pandemic giving an incredible boost to the subscriber base, the cord-cutting trend has also contributed to the massive addition of new subscribers for the streaming services. The enormous attraction for original content on Netflix, many of which are hit shows, is also a reason for more people subscribing to Netflix. Netflix originals like The Witcher, Bridgerton, Money Heist, and Stranger Things have been huge grossers. Also, it is the premiering of popular original movies on Netflix.
Despite the low price, you must wait for the right market conditions and the formation of a new base to buy Netflix stock.
