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Can Netflix Net Subscribers, Revenues, and Fix Churn?
Stock Analysis & Ideas

Can Netflix Net Subscribers, Revenues, and Fix Churn?

Netflix (NASDAQ: NFLX), the king of streaming content, seems to be losing steam. Shares of the content streaming company have slumped this year with the stock down around 43% year-to-date.

In comparison, among other FAANG stocks (Facebook or Meta, Amazon, Apple, and Alphabet), Meta (FB) is the only other stock that has dropped by more than 20% year-to-date.

There are several reasons for the downslide of Netflix. One of them is rising competition. While Netflix has been at a competitive advantage for years now, other media companies are quickly catching up. Even the company’s management acknowledged the rising competition on its Q4 earnings call.

There has also been a slowdown in Netflix’s revenue growth rate. The company’s revenues grew 16% year-over-year to $7.7 billion in Q4. This growth rate was lower versus growth of 21.5% in the same period last year.

What’s more, NFLX expects these revenues to decelerate further in Q1 2022, with a year-over-year increase of only 10.3% and revenues of $7.9 billion.

In addition, the company has projected net additions of only 2.5 million subscribers globally.

The streaming giant has implemented a number of steps to shore up its subscribers and revenues. While in countries like India, the company slashed the prices of its subscription plans, in countries like the U.S. and Canada, the prices of its subscription plans were increased.

Last month, NFLX also announced that it was exploring charging households who were sharing accounts. Furthermore, the company announced that it was planning to roll out a plan over the next few weeks in countries like Chile, Peru, and Costa Rica that would enable households to add an extra member to their existing plans, or transfer their membership profiles to a new account for a small charge.

When it comes to NFLX’s subscription price increases, Wedbush analyst Michael Pachter believes that while NFLX may be “nearing a ceiling on UCAN (U.S. and Canada) subscribers,” the rise in subscription fees in the West should drive “additional content production and growth in other regions, and our bias is that cash flow will turn positive in 2022 and beyond, as management has guided.”

Moreover, the analyst thinks that while Netflix may continue to sustain profits as long as it is able to increase its subscription prices “but competition may limit future price increases.”

Pachter believes that NFLX is more likely to grow its subscribers “in less developed regions at lower subscription prices” with its subscribers in the West likely to pay higher prices to fund its content.

Pachter however, is sidelined on the stock with a Hold rating and has a Street low price target of $342 on the stock implying that NFLX is priced in at current levels. One reason that the analyst is sidelined on the stock is that he thinks that churn may continue to be high for NFLX.

“Content dumps, where all episodes of a new season are delivered at the same instant” could result in price-conscious subscribers churning out of the service and shifting to NFLX’s competitors.

Wall Street’s Take

Other analysts on the Street, however, do not side with Pachter and are cautiously optimistic with a Moderate Buy consensus rating based on 17 Buys, 15 Holds, and two Sells. The average NFLX stock forecast is $500.56, implying 46.7% upside potential from current levels.

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