Netflix stock has declined by 75% following a loss of subscribers and slowing revenue growth in 2022. Is NFLX a buy if they can figure out new ways to grow?
People being stuck at home in 2020 and 2021 pulled forward a lot of revenues for Netflix and its stock price reached an all time high of $701 per share before declining 77% to its current 52 week low of $162 per share.
I reflect on the various strategies that Netflix might be considering to generate growth and revenues and restore investor confidence in the stock.
Netflix is experimenting with charging users for password sharing in Latin American countries and they may eventually have an ad-supported subscription tier because they lost 200,000 subscribers in Q1 2022 and they projected they will lose another 2 million subscribers in Q2 2022.
Netflix had reached a new high of 222 million subscribers in 2021, but this may drop to 220 million or less in the second quarter.
Famous investor Bill Ackman of Pershing Square Holdings decided to liquidate their entire Netflix stake in Q2 after buying in Q1 because they don’t know how the potential changes of including advertising and going after password sharing will impact Netflix’s future revenues, subscriber growth, capital intensity, and operating margins.
One article estimates that Netflix could generate $7 billion in global ad revenue by 2025, which would account for 15% of $45 billion in total revenues. Also, they are missing out on between $2 billion in lost revenue from North American password-sharing and $6 billion globally. In total, these new features could lead to $13 billion of new revenues in a year or two.
Some are speculating that Netflix may want to either buy or collaborate with Roku, which they have worked with in the past. I share my thoughts on a potential partnership with Roku and/or Spotify as some articles are suggesting Netflix needs to diversify to come up with new revenue streams.
Netflix stock has experienced a breathtaking plunge to price levels we haven’t seen since exactly 5 years ago in 2017. That means people are paying the same price (not inflation-adjusted) for NFLX as they did when Netflix was generating $10 billion in revenues in 2017.
They made this differential of $10 billion revenues over 2020 through 2021 alone because they earned almost $30 billion in streaming revenues in 2021, almost $25 billion of revenues in 2020, and almost $20 billion of revenues in 2019. It’s incredible how people have lost faith in Netflix’s ability to generate monster revenues.
Some suggest that Netflix may need to un-disrupt itself in how it disrupted the traditional cable industry.
With the likes of Amazon Prime Video, Disney+, Hulu, ESPN, Apple TV+, HBO Max, Paramount+, and others nipping at Netflix’s market share, Netflix is no longer the underdog and is now the one to beat.
Therefore Netflix might be considering some traditional media strategies such as scheduled appointment programming, and how they’re developing new TV shows. They used to mostly go “straight to series” of ordering a whole season from content creators. Now they may be ordering more pilots as they are emphasizing more quality over quantity after years of building their content library.
While Co-CEO Reed Hastings resisted following competitors, they are now considering bidding on Formula 1 racing rights following the success of their “Drive To Survive” documentary series.
So who knows if Netflix will go up or down from here, but it’s a really compelling investment idea that I’ll be keeping my eye on.
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