Netflix is classified among the most prestigious of stocks called FAANG, and while it still remains an elite asset, a number of financial advisors are downgrading their rating on the shares at the moment.
American subscription streaming service and movie production company, Netflix Inc (NASDAQ: NFLX) experienced one of its worst days in years as the shares slumped by 35.12% on Wednesday to $226.19. The fall in the company’s shares came as a result of the revelation that the Los Gatos, California-based firm lost some of its paying subscribers for the first time in about a decade.
The drop in subscribers has left investors concerned about the future of the company which recorded a very massive boost in the heat of the pandemic.
“Netflix is a poster child for what happens to growth companies when they lose their growth,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. “People buy growth companies because they think their cash flow is going to grow so they’re paying ahead for anticipating that. When a stock like this tumbles, people looking for growth back away quickly.”
Netflix is classified among the most prestigious of stocks called FAANG, and while it still remains an elite asset, a number of financial advisors are downgrading their rating on the shares at the moment. Investment brokerage outfit, JPMorgan has revised its price target for NFLX shares from the milder Wall Street target of $400 to $305.
With the current business outlook of Netflix, it is believed that “Near-term visibility is limited … and there’s not much to get excited about over the next few months beyond the new, much lower stock price,” JPMorgan analyst Doug Anmuth said.
NFLX Needs to Rewrite the Narrative to Revive Its Shares
Netflix has been spending a lot on new shows for the better part of the decade as its subscriber count increased dramatically in the first quarter of 2020, the time when the world was placed on a standstill with the stay-at-home policy that was enacted around the world at the time. To find comfort while at home, many took to video streaming, of which Netflix was a bigger beneficiary.
While the loss in subscriber count is not a personal vendetta of some sort, people that had free time on their hands have resumed their normal activities, and it is only logical to cut back on the time spent watching movies at home on Netflix.
“We’re left with a business in transition. Subscribers have slowed and we struggle to see a return to a pre-COVID net add cadence,” Piper Sandler analyst Thomas Champion said in a note.
To re-route its growth on the right part in a bid to entice new investors, Netflix has to become creative in producing more quality content like Squid Game and Ozark as that is now becoming more challenging with a lot of competitors around. Additionally, Netflix seems ready to combat the password-sharing challenge that has notably impacted its subscriber count for years. At the moment, One of Netflix’s best ratings is a “hold” from “underperform” according to Needham & Company, and all eyes are on the firm to turn the tides around before it loses all gains it has acquired in the past 2 years.