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Netflix Bloodbath: Why NFLX’s Market Cap Plunged $12 Billion in 3 Days

Last Updated September 23, 2020 1:02 PM
Joseph Young
Last Updated September 23, 2020 1:02 PM

Netflix (NLFX) stock plunged by more than 6 percent within hours after the U.S. stock market opened, wiping out $12 billion from the market capitalization of the company in merely three days.

The Netflix stock is down substantially from its record high, demonstrating a poor year-to-date growth
Netflix stock is down substantially f.rom its record high, demonstrating a poor year-to-date growth. | Source: Yahoo Finance

The major factors behind the steep downward trend of Netflix stock are said to be increasing competition in the U.S. streaming market with the entrance of Disney and Apple coupled with the lackluster Q2 performance of Netflix that intensified the fears of strategists.

Netflix CEO Reed Hastings said that a “whole new world” will begin for the streaming industry beginning November with Disney+ and Apple TV+ launching in the U.S., but he believes the company will be able to dominate  the bingeable content market.

“While we’ve been competing with many people in the last decade, it’s a whole new world starting in November…between Apple launching and Disney launching, and of course Amazon’s ramping up. It’ll be tough competition. Direct-to-consumer [customers] will have a lot of choice,” noted  Hastings.

The company has said that it will produce  more than 50 shows for the U.K. market this year with a budget of more than $500 million, aggressively pushing for expansion amidst fears of rising competition.

High-profile analysts predict bigger bloodbath for Netflix stock

As investors like Todd Juenger, an analyst at Bernstein, target $230 as the bottom of Netflix stock, investors have noticeably shifted their stance towards the dominant streaming service provider since its Q2 performance.

In the second quarter of 2019, Netflix recorded a decline in subscribers in the critical U.S. market for the first time since 2011.

The company added 2.7 million subscribers in the international market but substantially fell behind its guidance of 5 million.

At the time, Netflix said :

“Our missed forecast was across all regions, but slightly more so in regions with price increases. We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.”

When Netflix stock initially tumbled in July, the market did not take into consideration the changing landscape in the U.S. streaming market, which may have lessened the sell off of the stock that could have been much worse.

However, in the upcoming months, with two behemoths in Disney and Apple entering the streaming market, analysts stated that a growing number of investors are expecting the asset to see a larger pullback.

“The Q2 miss, coupled with the upcoming Disney+ launch in the US (and Apple as well, and more to come), has come together to make investors reevaluate their confidence in Netflix’s subs and pricing growth. Investors are increasingly asking us: ‘where is the floor?,’” said  Juenger.

Not all investors are pessimistic

According to former president of Hake Investment Research and Hake Capital Management Mark Hake, historically, Netflix has always  had a poor Q2 in terms of subscriber growth and it may be a temporary bad patch the company needs to recover from for stronger long- term growth.

The strategist also emphasized that the healthy financials of the company will allow the firm to maintain a consistent outflow of shows and movies, sticking to the vision of CEO Hastings on remaining in the “bingeable content market.”

As CCN.com previously reported, Tony Gunnarsson, the principal analyst at the research consulting firm Ovum, told CCN.com that Netflix is likely to hit 270 million subscribers in six years, predicting stable growth over the medium to long term.