Shares of Netflix tumbled more than 8% on Thursday after the video-streaming pioneer’s lackluster revenue rise sparked concerns of a longer road to growth from its new initiatives.
The company added nearly 6 million subscribers in the second quarter – almost three times above Wall Street’s expectations – thanks to a crackdown on password sharing and the introduction of a cheaper subscription tier that is bundled with advertising.
However, quarterly revenue growth and forecast lagged estimates, prompting co-Chief Executive Officer Greg Peters to caution that it would take “several quarters” to see returns from those efforts.
Netflix needs to squeeze as much juice as it can from different avenues,” Hargreaves Lansdown analyst Sophie Lund-Yates said, adding the market was “realms away from knowing” if the much-touted ad tier could become the new cash cow.
The company has been fighting off rivals Disney+ and Amazon’s Prime Video in an industry that is showing signs of saturation in the United States. Many of the company’s new sign-ups are in countries where it charges lower prices.
Netflix shares were on course for their worst day in 2023 and were also on track to shed nearly $20 billion in market value. Trading volumes in the stock, which is up 48% so far this year, were also the highest in two months.
“Some folks are using the result as an excuse to take some profits,” Pivotal Research Group analyst Jeffrey Wlodarczak said.
Analysts remained broadly upbeat on the stock though, with at least 26 of them lifting their price targets on hopes that revenue growth would accelerate in the second half of 2023 thanks to the new money-making initiatives.
They also said the ongoing strike in Hollywood might not hit Netflix’s content slate until 2024 and that it could give the company an edge over its peers as it has a solid lineup of shows.