Yesterday, echCrunch dug into the pandemic trade and its potential conclusion. As a refresher, during the first commencement of COVID-19 and the attendant lockdowns, changes to work settings, and travel restrictions, certain corporations saw their stock values raise swiftly as they gained investor favor. The reasons for some sectors gaining shine in the eyes of investors were numerous, but they can summarize. Companies and sectors whose demand boosted by the pandemic saw their stock prices rise in tandem. In addition, software businesses, which have shown resilience because of consumers’ inability to operate without paying for their services, have seen their valuations skyrocket.
Until the trade completed, in the last weeks of 2021, software businesses began to lose their huge valuation gains, and this trend has persisted into the New Year. The trade is coming apart a little later for companies like Peloton, which rode a consumer demand shift that gave their products more sparkle. Netflix is the most recent casualty. The streaming company’s recent earnings reports were barely short of a disaster. Its stock is down roughly 22% this morning, lowering its market capitalization to around $174 billion, down from more than $300 billion in November.
Netflix was an obvious option as a pandemic trade because it offers low-cost at-home entertainment. In addition, when everyone stayed at home, Netflix performed admirably. However, the period of rapid growth has ended. Instead of enjoying the expanded total market for its services that earlier, faster growth might have hinted at, Netflix’s latest earnings report suggests that the company may have taken future growth and moved it up, leaving the popular video service now in low-growth quicksand, with investor expectations exceeding what it can deliver.
Today, we’ll look at whether foreign growth can compensate for the company’s lost domestic growth, as well as what lies ahead for companies like Netflix as they emerge from a period of high investor interest and consumer demand. Netflix is an example, but what the firm is going through could be a sign of things to come for other consumer services that grew rapidly during the pandemic. Is there anyone else in danger? In Q4 2021, Netflix added 8.3 million new paid subscriptions, bringing the total number of paid memberships to 222 million.
That does not seem horrible in isolation, but context is crucial. First, the company’s expectation was 8.5 million, not 8.3 million, and markets are not fond of forecasts that not met. Second, the 222 million statistics indicates that this year’s subscriber growth was the slowest since 2015. When you stand back and think about it, this is not so much about missing the mark as it is about having faith in numbers. Is Netflix capable of appropriately analyzing its situation? The accuracy of forecasting, the need to address this could also explain why the company’s Q1 2022 outlook is more conservative.
It only expects 2.5 million new paid memberships in the current quarter, down from 4 million in Q1 2021 — when it projected 6 million. Even though the corporation is modifying its guidance, it still leaves many issues unanswered. Experts in the media, for example, may ask if the company being harmed by more competition or just approaching saturation. Netflix downplays the significance of these issues, and we tend to agree with them. However, this is not always good news.
