Netflix’s poor performance is additional proof that the pandemic trade is gone

The reasons for certain industries acquiring shine in the eyes of investors were many, but they may be summarised. Companies and industries whose demand was boosted by the epidemic saw their stock values rise in tandem. And software businesses, who have shown resilience as a result of consumers’ inability to function without paying for their services, have seen their values skyrocket.

On until deal was completed. In the last weeks of 2021, software businesses started to lose their huge value gains, and this trend has persisted into the new year. The trade is falling apart a little later for firms like Peloton, which rode a consumer demand shift that gave their goods more sparkle.

Netflix is the most recent casualty. The streaming company’s recent financial reports were barely short of a disaster. Its stock is down roughly 22% this morning, lowering its market capitalization to around $174 billion, down from more than $300 billion in November.

Netflix was an obvious option as a pandemic trade since it offers low-cost at-home entertainment. And when everyone remained at home, Netflix performed well.

However, the period of rapid expansion has come to an end. Instead of enjoying the expanded total market for its services that earlier, faster growth might have hinted at, Netflix’s latest earnings report suggests that the company may have taken future growth and moved it up, leaving the popular video service now in low-growth quicksand, with investor expectations exceeding what it can deliver.

Today, we’ll look at whether foreign expansion can compensate for the company’s lost domestic growth, as well as what lies ahead for companies like Netflix as they emerge from a time of high investor interest and consumer demand. Netflix is an example, but what the firm is going through might be a sign of things to come for other consumer services that grew rapidly during the epidemic. Is there anybody else in danger?

Recognizing Netflix’s achievements

In Q4 2021, Netflix added 8.3 million new paid subscribers, bringing the total number of paid memberships to 222 million. That doesn’t seem horrible in isolation, but context is crucial. First, the company’s expectation was 8.5 million, not 8.3 million, and markets aren’t fond of projections that aren’t met. Second, the 222 million statistic indicates that this year’s subscriber growth was the slowest since 2015.

When you stand back and think about it, this isn’t so much about missing the target as it is about having faith in statistics. Is Netflix capable of appropriately analysing its situation? What about the accuracy of forecasting? The need to address this might also explain why the company’s Q1 2022 outlook is more cautious. It only anticipates 2.5 million new paid memberships in the current quarter, down from 4 million in Q1 2021 — when it projected 6 million.

Even though the corporation is modifying its outlook, it still leaves a lot of issues unanswered. Experts in the media, for example, may ask whether the firm is being harmed by more competition or just approaching saturation. Netflix downplays the significance of these issues, and we tend to agree with them. However, this isn’t always good news.