Netflix stock cratered this week over subscriber worries. Is now the time to buy? (Update)

Apr. 22, 2022 8:36 AM ETNetflix, Inc. (NFLX)ROKU, CURI, FUBO, WBD, DIS, PARABy: Val Kennedy, SA News Editor130 Comments

Netflix (NASDAQ:NFLX) shares have been hammered since the streaming giant revealed earlier this week that it had unexpectedly lost subscribers. With the stock down about 37% since its earnings announcement, is now the time to buy?

Casualty of the Streaming Wars

On Tuesday evening, NFLX stunned investors with the release of a Q1 earnings report that showed it had lost 200k subscribers during the quarter. Even worse, it expected to lose another 2M in Q2. The revelations were in stark contrast to Wall Street estimates that called for Netflix to increase subscribership by around 2.5M in Q1 and 2.4M in Q2.

The market’s reaction was fast and furious. Shares of the streaming media giant cratered on the news, plunging 35% on Wednesday, wiping out more than $50B of its market capitalization.

NFLX management said that they planned to stem the tide by cracking down on password sharing and introducing a cheaper, ad-supported service. But investors and analysts are still debating whether the stock is now a sell, buy or hold.

NFLX stock had been declining since October, hastened by concerns that the subscription market was becoming saturated while viewers were becoming less inclined to binge on video now that pandemic restrictions were being lifted. The stock hit a 52-week high of $700.99 on Nov. 17. Right before it released its Q1 report on April 19, the stock closed at $348.61.

Following another mild decline on Thursday, NFLX has fallen 37% since its earnings report and sits 69% below its November high as of Thursday's close.

Meanwhile, NFLX competitors have also been under pressure. Pureplay streamers have been especially hard hit since the beginning of the year, with shares of Roku (ROKU) tumbling 56%, CuriosityStream (CURI) falling 60% and fuboTV (FUBO) nosediving 70% as of Thursday's close.

Media conglomerates with streaming operations have fared better, yet still show year-to-date losses. As of Thursday's close, Warner Bros. Discovery (WBD) shares have slid 9% while Disney (DIS) shares have dropped 22%. Paramount (PARA) has been the outlier, with shares rising 7% since the start of the year.

Is NFLX a Buy?

Wall Street analysts, on average, rated the stock a Hold. As of Friday morning, of the 44 analysts tracked by Seeking Alpha, 26 of them, almost 60%, give the stock a Hold rating. Another 14 maintain a bullish outlook, including 12 rating the stock a Strong Buy. Meanwhile, the recent concerns about streaming have led to two Sell ratings and two Strong Sell opinions.

SA authors also likewise rated the stock a hold, on average.

Seeking Alpha’s Quant Ratings rated NFLX a sell as of Friday morning. While the company earned an A for profitability and C for growth, it also received a D for valuation, D- for momentum and D for revisions.

Saying the disappointing results marked a "sea change quarter," J.P. Morgan analysts downgraded the stock to Neutral and lowered its price target to $300 -- a target well below where the stock was trading as recently as Tuesday.

“We’re moving to the sidelines as we look for greater confidence in restoring subscriber growth and reaccelerating revenue, while also increasing development velocity in account sharing and advertising,” J.P. Morgan said in a noted dated April 20.

Meanwhile, Pivotal Research Group turned bearish on the stock in the wake of its "shocking Q1 subscriber miss." The firm downgraded NFLX to a Sell and slashed its price target to $235 in a noted dated April 19.

Wolfe Research analysts were more upbeat.

“While we expect shares to be down significantly on the print and weaker guide, our view on the long-term opportunity for NFLX remains bullish. We look to password sharing crackdowns as a potential near-to-medium term catalysts,” they wrote in a noted dated April 19, maintaining their Outperform rating.

For more viewpoints on Netflix, check out SA contributor ASB Capital’s “Buy Netflix and Chill” or Juxtaposed Ideas’ “Netflix Lost the Squid Games—Another Decline Expected in 3 Months”.