Netflix stock price crashes 27% as 2 million subscribers loss expected in Q2

Netflix shares were down by almost 27 per cent in the premarket trading session after the company posted the First Quarter 2022 Earnings. Netflix market cap is close to $150 billion but the huge expected fall after market opens may eventually result in a loss in market capitalisation of almost $40 billion. As on Tuesday, Netflix stock closed at $253.70 and is down by almost 42 per cent year-to-date (YTD) before market opens on wednesday.

Netflix may soon turn out to be one of the worst-performing shares of 2022 year especially among the top-notch technology stocks.

“With the company’s shares already down 49% since November, the company saw its first fall in subscribers in 10 years – losing 200,000 in the first three months of the year. This is expected to fall by two million in Q2 due to tighter purchasing power for consumers through increased inflation and a higher cost of living,” says Adam Seagrave, UK Sales Trader at Saxo Markets.

Netflix Financials

Net cash generated by operating activities in Q1 was $923 million vs. $777 million in the prior year period. Free cash flow amounted to $802 million vs. $692 million. The company expects to hold the operating margin at around 20%.

Management pointed to four causes, including the prevalence of password sharing and growing competition. Netflix’s revenue growth has slowed considerably as the large number of households sharing accounts, combined with competition, is creating revenue growth headwinds.

The company projects revenue to grow approximately 10% year over year in Q2, assuming roughly a mid-to-high single digit year over year increase in ARM on a forex neutral basis. Average Revenue per Membership (ARM) is defined as streaming revenue divided by the average number of streaming paid memberships divided by the number of months in the period. The company targets a 19% – 20% operating margin for the full year 2022, assuming no material swings in forex rates from when we set this goal in January of 2022.

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