Netflix has reached maturity

Neflix reported Q1 financial results last night (April 19); the company reported a loss of 200,000 subs for the quarter but guided to a future loss of 2 m subs in Q2.  The market's verdict was swift and harsh, with the stock down by 36% to $222 late in the day on April 20.  The one-year decline is worse, down nearly 60%.  Despite the sharp declines, it is probably not the time to buy the stock.  Compare the stock performance of Meta (FB) since its "adjustment" in Feb 2022 when it reported its Q4 results.  The stock cratered a massive 31%, but since that date has dropped a further 10%. 

During its conference call after the release, the Company flagged 2 interesting issues.  First, its shutdown in Russia cost 700,000 subscribers.  Excluding these subscribers, the Company would have gained 500,000 subs, but still far below the 2.5m that it had guided to.  The second point was that password sharing might account for 100m additional shadow subs.  Of course, it would be great for the Company to find a way to curtail this, but it does not change the fundamental narrative of low future growth.  

These results signal that NFLX has reached maturity.  The days of large subscriber growth are over.  Perhaps this is a result of saturation of its TAM, or perhaps influenced by increasing competition.  One response from the Company was to suggest that it might add an ad-supported subscription to its offerings.  However, this would also come with competition from other streaming services such as DIS and HBO Max.  

As a mature company, the Company needs to change the narrative and focus investors on another metric: either Revenue growth or a profit metric.  The Company has more flexibility with profits since its content spending in 2021 amounted to $17B.  Apple had the same transition when it stopped releasing data about unit sales and focused on Revenues.  NFLX has reached the same point.