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Netflix Stock Q1 Earnings Review: Blood In The Streets

After delivering disappointing subscriber stats, the market reacted to Netflix's Q1 2022 results by pushing the share price down by 30%-plus. Is the selloff justified?

On April 19, Netflix  (NFLX) - Get Free Report released its Q1 2022 results and the market freaked out. NFLX fell 25% in after-hours trading, and the selloff got as ugly as -38% during the Wednesday session.

Although the market had already been pricing a possible slowdown in usage, few were counting on the company's negative net addition this time.

Today, we review some of the key points in the company's earnings report. Is bearishness fully justified? Or instead, could this Wednesday’s selloff be just another leg lower in a long-lasting bearish trend?

Figure 1: Netflix Stock Q1 Earnings Review: Blood In The Streets

Figure 1: Netflix Stock Q1 Earnings Review: Blood In The Streets

(Read more from the MavenFlix: DIS Stock: 3 Reasons to Buy in April)

Market expectations for this quarter

The key metric in streaming services that Wall Street analysts care the most is subscriber growth. Lack of traction here is something that had been bothering NFLX investors even before earnings season, as the company's new subscriber additions have been dropping since 2021.

The market expectation for Q1 net additions was 2.5 million subscribers, down 74% from pre-pandemic levels. Clearly, there was pessimism about Netflix's upcoming results already factored into consensus.

Netflix Subscribers Drop: What Happened?

Even most skeptics did not fully anticipate the company's operating results this quarter. Netflix reported a sequential net loss (not gain) of 200,000 paid subscribers.

This is the first time that the company has posted a subscriber decline on its platform. Worse yet, the company guided that next quarter will bring another drop of 2 million subscribers.

An interesting question to ask is whether the trend merely reflects Netflix’s struggles, or if the entire streaming segment — including Disney, Amazon and others — will be victims of consumers’ lack of interest in streaming services following the end of the COVID-19 crisis..

Revenues increase, but much more slowly

Despite the loss of subscribers, Netflix continues to report increasing revenues. In Q1 2022, the company delivered nearly 10% year-over-year growth. But to be fair, this number is far lower than the average growth rate in recent years.

In 2021, Netflix's revenues increased 21% in the first quarter. A growth company and stock are unlikely to escape investor scrutiny when the top-line growth rate decelerates at this pace — with the loss in subscribers in the first half of 2022 suggesting that there is more to come.

Our Take

Netflix is still the leader in the streaming segment and is certainly a very important player in the “new media” space. However, the company has been a disappointment for shareholders, especially in the last year.

NFLX seems to be in limbo: it is definitely not a growth stock anymore, and few are probably ready to consider it a value stock. For the latter to happen, Netflix probably needs to stabilize revenues, improve margins drastically and start to generate massive quantities of cash flow.

For now, it is hard to defend NFLX on the dip, at least until financial results improve and the stock finds a floor. A buy on weakness here is probably speculative.

Ask Twitter

Netflix stock is down sharply after the company delivered disappointing subscriber metrics — share price is now down 67% from the November 2021 peak. Is this an opportunity to buy the dip, or should investors stay away?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)