(Bloomberg) — Netflix Inc. shares are on course to lose about $42 billion in value Wednesday after the streaming giant reported its first subscriber decline in more than a decade as the company pledges to make a slew of changes to its business to arrest a customer exodus.
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Shares in the company fell more than 27% premarket trading, extending its plunge this year to 58%. If the losses hold, Netflix is poised to become the worst-performing stock this year in both the benchmark S&P 500 and tech-heavy Nasdaq 100 indexes.
The streaming service shocked Wall Street by losing 200,000 customers in the first quarter, the first time it has shed subscribers since 2011. It also projected it will shrink by another 2 million customers in the second quarter.
“A big problem with Netflix is that it’s too easy to leave the service,” said Russ Mould, investment director at AJ Bell. Consumers feeling the pinch from inflation will be looking hard at their expenses and streaming services are a quick way to save money.
The drop in customers has led Netflix to break some of its long-standing rules: it will introduce a cheaper, advertising-supported option for subscribers in the next couple years and will start to crack down on people sharing their passwords even before that.
Analysts across Wall Street slashed their price targets for the streaming-video company, while at least seven brokerages downgraded the stock.
JPMorgan’s Douglas Anmuth, one of the analysts who cut his recommendation on the stock, said he was encouraged by the company’s intentions of creating an ad business — a model that has worked for Hulu and Disney+ — but noted that it was still in early stages.
Netflix’s stock has suffered this year as the pandemic-era surge in user sign-ups faded and investors have turned away from high-value technology and growth stocks due to rising bond yields. In comparison, the S&P 500 is down 6.4% so far this year, while the Nasdaq 100 has declined almost 13%.
Fellow stay-at-home stocks, including Etsy Inc., Zoom Video Communications Inc. and DocuSign Inc. have also been hit by deep losses, down by 33% to 47% in 2022, as these businesses struggle to leverage the inroads they made during lockdowns.
(Updates shares, adds analyst action, comments)
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