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Netflix Stock Faces $50 Billion Wipeout On Weak Subscriber Growth Outlook As Competition Bites

Netflix shares could erase more than $50 billion in value Friday following a weaker-than-expected forecast for quarterly subscriber growth.

Updated at 11:20 am EST

Netflix  (NFLX) - Get Netflix, Inc. Report shares plunged lower Friday, potentially erasing $50 billion from its market value, following a weaker-than-expected outlook for subscriber growth and the first suggestion that increased competition is affecting its ability to attract new users to its streaming platform.

Netflix said it added 8.28 million subscribers over the period, missing the Street estimate of 8.4 million, and taking the overall total to 221.8 million. Net additions for the first three months of the year would come in at 2.5 million, Netflix said, compared to a market forecast of 5.9 million, citing what it called "Covid overhang" in key overseas markets.

"We're trying to pinpoint what that is. It's tough to say exactly why our acquisition hasn't recovered to pre-COVID levels," CFO Spencer Neumann told investors on a conference call late Thursday. "When we look at the data on a competitive impact, there may be some kind of more on the marginal kind of side of our growth, some impact from competition but we just don't see it specifically."

Those remarks were echoed by CEO Reed Hastings, who told investors that, while rivals such as Hulu and Amazon have challenged Netflix for more than a decade, "there's more competition than there's ever been."

Netflix shares were marked 22% lower in late morning trading Friday to change hands at $397.25 each, a move that would lope more than $50 billion from its market value and take the stock back to levels last seen in May of 2020.

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Netflix said earnings for the three months ending in December were pegged at $1.15 per share, down 3.3% from the same period last year but firmly ahead of the Street consensus forecast of 82 cents per share, while revenues rose 16%  to $7.71 billion.

In terms of revenues, Netflix said it sees a top line of $7.9 billion for the current quarter, with net income in the region of $1.304 billion, translating into earnings of $2.86 per share.

"Whether simply a long hangover from the pandemic pull forward, competition having an increasing impact (something management noted this quarter might be a part of the issue), and/or the march towards 100% of homes streaming taking longer than expected, the current soft patch and little mid-term visibility inspires a more conservative net add outlook, and streaming models have high operating leverage," said Credit Suisse analyst Douglas Mitchelson, who cut his rating to 'neutral' from 'outperform' after last night's earnings and slashed his price target by $290 to $450 per share.  

"Management does not believe competition is having that much of an impact, though it was more clearly acknowledged as a potential contributor this quarter than they had previously suggested," he added. "Others in the space, like Disney+, have also been struggling to grow. But competition is only going to get tougher, and many investors will prefer to wait on the sidelines until there is a clear indication the market has improved."  

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