Netflix (NASDAQ: NFLX) shares are not having a good run in 2022. In January, the stock fell more than 20% after results for Q4 2021 disappointed investors. Now it’s just fallen another 35% after Q1 2022 results disappointed the market as well.
After the two massive share price falls in 2022, Netflix stock is now trading nearly 70% below its all-time high set in November. That’s a huge decline. Is this a buying opportunity for me? Let’s take a look.
Why Netflix stock just crashed
Netflix’s Q1 results, posted on Tuesday night, were pretty ugly. While revenue for the quarter rose 9.8% year-on-year to $7.9bn and earnings per share came in at $3.53, above Wall Street’s estimate of $2.89, subscriber numbers were alarmingly down.
You see, the market had been expecting Netflix to add around 2.8m subscribers during the period. However, it actually ended up losing 200,000 of them. This was the first time in a decade the group had reported a decline in subscribers.
Making matters worse, the Q2 guidance was terrible too. For the current quarter, Netflix expects to lose 2m subscribers. Analysts had been expecting a gain of around 2.7m.
Clearly, Netflix has a subscriber problem at the moment. And this has big implications for revenue growth (and the share price).
What’s going wrong for Netflix?
As for why subscriber growth is stalling, there are a few reasons. These include:
- Rising competition. There’s now a ton of rivals in the streaming space. And Netflix is up against some big players, including Amazon, Apple, Disney, and YouTube.
- Inflation. A lot of consumers are feeling the pinch right now due to soaring energy prices. As a result, they’re cutting back on non-essentials.
- Password sharing. Because many people share passwords, Netflix already has a relatively high household penetration in many countries. The group estimates that in addition to its 222m paying households, access is being shared with more than 100m additional households through account sharing.
- The Russia-Ukraine crisis. Netflix said that the suspension of services in Russia resulted in losses of 700,000 subscribers.
Should I buy Netflix stock now?
So is the stock worth buying for my portfolio then after its big share price fall? I’m not convinced it is.
Yes, the valuation has come right down. If Netflix can achieve the consensus current earnings forecast for 2022 (this is likely to be revised down), the forward-looking price-to-earnings (P/E) ratio is only about 20.
However, I think the company could continue to experience growth challenges for a while. With inflation so rampant right now, I expect the latter half of 2022 to be challenging for consumers. I imagine that many will pick one streaming platform, as opposed to a few, to cut back on costs. Netflix is going to have its work cut out to hold on to customers and boost its revenues.
Of course, in the long term, Netflix stock could recover if growth picks up. It’s worth noting that the company does have some ideas on how to bring in new subscribers. We may look back at the recent share price fall and see an amazing buying opportunity.
However, all things considered, I think there are better growth stocks to buy right now.
