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Netflix feels the heat as pandemic boom crumbles with loss of subscribers

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Shares of Netflix Inc lost more than a quarter of their value in premarket trading on Wednesday after the company reported its first drop in subscribers in a decade, leaving Wall Street to question its growth amid fierce competition and post-pandemic viewer fatigue.

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Shares of the streaming pioneer fell 27.2% to $253.71 and were heading for their worst day in a decade if losses hold. At least a dozen analysts rushed to temper their views on a stock that has been a very successful market for the past few years.

“Netflix is ​​a model for what happens to growing companies when they lose growth,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

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“People buy growing businesses because they think their cash flow will increase, so they pay in advance to anticipate that. When a stock like this tumbles, people looking for growth back down quickly.

Brokerage JPMorgan took the most aggressive move, halving its price target to $305 – well below Wall Street’s median target of $400.

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“Short-term visibility is limited…and there’s not much to look forward to in the next few months beyond the much lower new share price,” said JP analyst Doug Anmuth. Morgan.

Anmuth also halved its estimate of net subscriber additions for 2022 to 8 million.

The stock’s tumble could wipe out the stock’s gain of the past two years, when its business boomed as new customers joined its platform to overcome lockdowns.

In an effort to calm nerves, company executives told analysts on Tuesday they were looking to offer an ad-based tier within the next two years and promised a crackdown on password sharing — a long standing problem for the service.

“We have the whole kitchen sink… That might not be enough,” said Russ Mould, chief investment officer at AJ Bell.

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Rivals Netflix already have ad-based versions or are considering one – HBO Max offers an ad-supported subscription, while Disney+ recently announced it would launch an ad-based tier.

“We find ourselves with a company in transition. Subscribers have slowed and we are struggling to see a return to a pre-COVID net addition cadence,” Piper Sandler analyst Thomas Champion said in a note.

The demand for fresh and engaging content is also growing, forcing Netflix and others to think about larger production budgets, even as costs rise in an inflationary environment.

“Netflix’s profitability or business model is not the issue, as the numbers show, but the fact that some consumers may be canceling due to inflation and post-pandemic user fatigue,” he said. said Peter Garnry, head of equity strategy at Saxo Bank.

For the second quarter, Netflix has lined up new seasons of popular shows “Ozark”, “Stranger Things” and “Grace and Frankie”.

Needham, however, took a diverging view. The brokerage raised its rating on the stock from “underperforming” to “holding”, encouraged by the company’s plans to add a level of low-cost publicity.

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