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Netflix shares sink after subscriber outlook misses estimates

·4 min read

As earnings season ramps up, Netflix (NFLX) kicked the reporting period off for big tech when it unveiled its fourth quarter results after the bell on Thursday.

The stock fell 11.82% to $448.15 per share in after-market trading on Thursday after Netflix's subscriber growth forecast came in below analyst estimates.

Several key metrics were in focus as the company revealed performance during the final three months of 2021, but investors paid particular attention to subscriber growth and revenue as indicators of how the streaming giant will fare in a post-pandemic world as the "stay-at-home" trade falls out of favor.

Here were the main metrics from Netflix's report, compared to consensus estimates compiled by Bloomberg:

  • Earnings per share (EPS): $1.33 per share vs. $0.88 expected

  • Revenue: $7.71 billion vs. $7.71 billion expected

  • Net subscriber additions: 8.28 million vs. 8.13 million expected

Netflix added 8.28 million global paid net subscribers in the last quarter of 2021, beating the 8.13 forecasted by analysts, according to Bloomberg data. Still, shares were weighed down by a disappointing outlook for subscriber growth. The company said it expects to add 2.5 million subscribers in Q1 2022, compared to 3.98 million during the first quarter last year.

The company reported adjusted earnings per share of $1.33, beating analysts' expectations of earnings per share of about $0.88 — a sharp decline in profit from $3.19 the previous quarter, dragged down by rising costs. Netflix met expectations on revenue of $7.71 billion, up from $7.48 in the third quarter. The headline subscriber growth number remained the most important metric for stock watchers, expected to come in nearly double the prior figure at 8.5 million.

Netflix hit a lull in 2021 as so-called “stay at home” trades waned in popularity as investors anticipated a growing number of people returning to in-person activities as the economy reopens and COVID-19 unwinds. The company underperformed the S&P 500 last year as subscriber growth decelerated after a strong 2020 that saw streaming players benefit from lockdowns with more consumers at home.

In the third quarter, Netflix saw 4.38 million sign-ups. Although the closely-watched figure beat analyst estimates, the number came in far below the record 25.9 million additions in the first half of 2020. As stay-at-home trades lose steam, investors will look to see whether Netflix can overcome resulting hurdles such as decelerating paid subscriptions and slowing revenue growth.

In an effort to improve its revenue, the streaming giant recently raised prices on its North American plans to boost cash and help finance new programming — a move that was met favorably by analysts and sent its stock price up following the news. Netflix hiked its basic U.S. plan by $1 to $9.99 per month, the standard plan to $15.49 from $13.99, and its premium plan to $19.99 per month from $17.99. The company also raised fees on Canadian plans.

“Each successive price increase could drive a bit more friction, but Netflix is willing to trade off a small number of subscribers for incremental revenue, and most of them come back anyway,” JPMorgan analysts said in a note, adding they expect the incremental rise in revenue to help finance increased content spending.

“The content pipeline has never been more robust,” CFRA Research senior equity analyst Tuna Amobi told Yahoo Finance Live on Thursday. “Despite the intensely competitive environment, I think the company is very well positioned to kind of build on this momentum especially from international markets.”

Analysts at BMO Capital Markets shared a similar outlook.

“After waning last quarter, our conviction is higher after this pullback,” Daniel Salmon, BMO’s managing director for U.S. internet and media equity research, wrote in a note. “We think subscriber beats are still the most important driver.”

Bank of America, which maintained a Buy rating on the stock, also forecasted in a recent note that Netflix is likely to benefit from its robust content lineup in 2022, along with continued growth in Asia. The bank highlighted the opportunity for subscriber upside and new subscriber models as key drivers for the company this year, even amid increased competition from streaming peers.

In terms of its recent price increases, Bank of America analyst Nat Schindler told Yahoo Finance Live that Netflix "has not seen substantial churn when they raise prices in most markets."

"There's a short-term bump right when they do it and then it usually comes right back down, and subscriber growth returns really rapidly," he said.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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