Does it Make Sense to Invest in Netflix at the Moment?

Shares of Netflix dropped less than 1% in the regular trading session on Tuesday in advance of its first-quarter earnings release. Nonetheless, as of 4:30 p.m. EDT, its shares dropped more than 11% in after-hours trading. At first glance, the company’s numbers would seem to justify this level of negative response. Net income more than doubled from year-ago levels, but an important portion of that rise came from a one-time foreign exchange adjustment.

It was not the income that triggered the negative response. The issue was a dramatic slowdown in the number of new customers Netflix bought on during the period. Currently, Netflix has 207.6 million subscribers, but that was up by less than 4 million from three months ago. Furthermore, the company sees that the growth rate is not increasing that much, as well as it set second-quarter guidance that predicted only 1 million more new viewers between April and June.

Netflix and competitors

The company is losing market share and it is hard not to mention this issue. Netflix was the first company to make streaming video a mainstream phenomenon, and for years, it was the main company in this industry. This is not the case anymore, as big rivals such as Disney as well as AT&T also entered the market.

Despite this fact, there is room for more than one winner in this business, and the company’s market-leading 204 million paid worldwide subscribers represents only a small fraction of its total addressable market.

• The Second Day of Correction on Wall Street

Netflix is a powerful company, but it wouldn’t be a stretch to suggest that its best days are behind it. The company will have to work harder if it wants to compete with Disney and other companies. Netflix secured 36.2% of the U.S. over-the-top television industry’s revenue last year, down by more than 8% compared to 2019. Its share is expected to decline to 28.4% by 2022.

The company is wining a comparatively smaller piece of a rapidly growing pie. In 2020, the revenue reached $25 billion and last year’s revenue was bigger than it was in 2019.

Competitors are working hard to reach better results. Disney is expecting to have between 230 million and 260 million Disney+ subscribers by 2024. Netflix will be forced to take measures to retain its market share. The company will have to spend more money on marketing, or content, or both.