Could Netflix Go Below The $100 Mark Before 2022 End?

For Netflix, the music is slowing down. Another two quarters and the streaming service could be staring at a share price of less than $100. On 19 April 2022, Netflix closed at $198.40, down from $348.61 merely a week ago, thanks to the Q1 numbers announced last weekend. For the first time in a decade, Netflix registered a net loss of 200,000 subscribers, taking its subscriber base to 221.6 million.

That was not the worst news, for the loss of 700,000-odd subscribers in Russia after a hurried exit in the wake of the Ukraine conflict amounts to a net addition of 500,000 subscribers. What is worrying for the company is that it was aiming to add 2.5 million subscribers this quarter, against 4 million for the same quarter last year. Analysts on Wall Street expected 2.7 million subscribers. However, the worst is yet to come, for Netflix has predicted a loss of 2 million subscribers globally in the Q2 of 2022.

Around the second or third week in July, later this year, the company will announce its numbers for Q2, while by mid-October, results for Q3 will be public. Assuming the company’s downward spiral continues, the share price could go below the $100 mark, sending its market cap for a toss.

In 2022 alone, the company has registered steep falls in its share price. On 20 January 2022, the closing share price was $508.25, which came down to $350-odd a week later after the results for the final quarter of 2021 were announced. The second fall came last weekend, as concerns around the company’s sustainability and profitability grew.

To put things in perspective, Netflix has wiped out all its gains from the pandemic when its share price went as high as $690-odd in October 2021 from $330-odd in March 2020. Netflix’s shares had not traded below the $200 mark for more than four years, with December 2017 being the last month before April 2022. At the end of 2017, Netflix’s market capitalisation was around $83 billion at a share price of $190-odd. Today, the market cap has slipped to around $95 billion even when it closed in 2021 at more than $267 billion.

What would be Netflix’s endgame if the trajectory persists for another two quarters?

Most of the current projections factor in a swift growth in user numbers for Netflix. This optimism can be attributed to the pandemic that saw a sharp increase in the number of viewers and a consequent increase in the share price. However, with the double whammy of inflation and the Fed’s interest rate hike, the free money run is over for Netflix.

Assuming the company loses 2 million subscribers in Q2, 2022, and 5 million for this year, its net subscriber count will fall to around 216 million. If the trajectory continues for another two years, until 2024 ends, Netflix will be in dire need of an acquisition by a bigger studio or corporate.

Most forecasting models assume Netflix to touch the 400 million subscribers mark by 2029, or 300 million by 2024, and hit a pricing point of around $20 to have its share price trade at around $200. This appears to be an impossible ask with the recent numbers in hindsight.

Even if Netflix were to charge $30, owing to the OTT competition and inflation by 2029, it would need at least 300 million subscribers to have a share price of around $250, as per one forecasting model. That would warrant the addition of around 10 million subscribers each year for the next eight years, or 2.5 million subscribers each quarter. The problem for Netflix is that it is neither getting the pricing right nor subscriber growth. A projected loss of 2 million subscribers, net, for the next quarter will only rattle the investors.

The writing was always on the wall. The signs first appeared in 2018-19, when studios began exploring, experimenting, and investing in their streaming services, starting with Disney and HBO, followed by Amazon and Apple. In this elaborate analysis from July 2019, the author highlighted the growing debt concerns for the company, the lacklustre debut in the Asian markets, and how the withdrawal of key intellectual properties by the respective studios could dent the audience base.

Come 2022, and the concerns have only compounded. Today, Netflix is being pushed against the wall by Amazon, Apple, Disney, Hulu, HBO, and smaller OTT services in regional markets. The company's generosity is now being put under scrutiny with sequels being called off, and unlike a giant like Apple or Amazon, Netflix has the challenge of turning green while balancing spending and debt. The lack of bundled services pushes users away to other platforms, especially those with sports streaming. Put together, there are thirteen reasons why (pun intended) Netflix is struggling.

Saturation in several markets is also adding to Netflix’s concerns. In 2021, Netflix added 800,000 users in Australia, almost a million in Brazil, 1.4 million in France, 900,000 in India, and 1.1 million in South Korea. From a pricing perspective and competition, Netflix did fairly well in India, even with its mediocre content.

However, it is the saturation of the old markets that is hurting Netflix’s growth ambitions. In the three markets of Canada, Germany, and United Kingdom, the net subscriber addition across 2021 was less than 500,000 for each country. In the United States it was less than 400,000.

Saturated markets, growing debt, increasing competition, and no visible path to sustained profitability may result in Netflix’s share prices sliding below $100 before the end of 2022, and that would be the biggest story of the year. The question, however, remains whether the company will seek an acquisition or fresh investments to fight a war it cannot win. For Apple, Netflix at a share price of less than $100 would make for a great addition to its ecosystem, but more on that later.

Also Read: Why Is Netflix Changing Its Core Strategies?