Wall Street’s former favorite Netflix is all of a sudden facing some serious challenges.
It is expected that the financial report for the streaming giant’s second quarter will be released on Tuesday, and this event is shaping up to be one of the most significant occasions in the company’s history of 25 years.
The year 2022 is turning out to be a disaster for Netflix. The business announced in April that it had lost customers in the first quarter which was the first time that this had occurred in any quarter for more than ten years. The following plunge in the price of Netflix’s stock, which is already down almost 70 percent since the beginning of the year, wiped out billions of dollars’ worth of market value for the company and resulted in the termination of hundreds of employees.
Netflix’s world was flipped upside down, much like the world of the children in “Stranger Things,” not only because of the loss of subscribers but also because of other issues. Investors were taken aback by Netflix (NFLX) prediction that it will suffer another $2 million in losses over the spring due to its poor prognosis for the second quarter.
Whatever takes place on Tuesday could have a significant impact not only on the future of the company but also on the streaming industry as a whole. Everything in streaming follows the lead of Netflix.
According to Andrew Hare, senior vice president of research at Magid, who spoke with CNN Business, “There will be hell to pay if they report a number that is significantly higher than the $2 million loss being thrown around.”
Hare observed that the streaming market has reached its maturity and is now saturated. The question that will be on the minds of investors is, therefore, “What’s next, and where is the growth going to come from?”
Netflix is putting all of its eggs in one basket, and that basket is called advertising.
The company made the announcement on Wednesday that it will collaborate with Microsoft to develop a fresh, more affordable membership plan that is financed by advertisements. Advertising will play a significant role in Netflix’s ambitions to increase revenue in the future, despite the fact that Reed Hastings, CEO of Netflix, has been strongly opposed to the concept for many years. Reportedly, the new tier will be available before the year 2022 comes to a close; yet, Netflix acknowledges that its budding advertising company is still in its “very early days.”
In addition to this, the company is placing an emphasis on putting a stop to the practice of users exchanging passwords and on developing content that is compelling in an effort to help turn the tide.
But will any of that matter if the results released on Tuesday are so unimpressive that Wall Street completely abandons Netflix?
“Once Netflix becomes heavily undervalued by the market,” Hare said. “All bets are off.”
Despite this, the streamer does have a few things going for it that are worth considering. To begin, Netflix is still the market leader in the streaming industry, boasting 221.6 million users all over the world. It is also releasing data in a market that is presenting issues that are beyond Netflix’s control, such as rising inflation. This makes it difficult for Netflix to predict its future performance. Therefore, it has such justifications upon which it can rely in order to possibly ease the impact to investors.
According to Hare, “Investors will give them time to right the ship but they need to hear more solid plans about the path towards immediate growth. It’s all about communicating how they are evolving the business to ensure they continue to win in streaming… No one has the stomach for a business losing millions of subscribers every quarter .”