Netflix faces the biggest drop in its market value

Shares of the streaming leader Netflix dropped 35%, erasing $54 billion of market value in its biggest drop since 2004. The fall made Netflix the worst-performing stock of the year on both the benchmark S&P 500 and Nasdaq 100 indexes, sinking Warner Bros. Discovery Inc., Roku Inc. and others.

The company is changing course after losing 200,000 customers in the first quarter, the first time it has shed subscribers since 2011. Netflix also projected it will shrink by another 2 million customers in the current quarter. Netflix will also restrain its spending on films and TV shows in response to the customer losses.

Kim Forrest, Chief Investment Officer at Bokeh Capital Partners in Pittsburgh said, “Netflix is a poster child for what happens to growth companies when they lose their growth. People buy growth companies because they think their cash flow is going to grow so they're paying ahead for anticipating that. When a stock like this tumbles, people looking for growth back away quickly.”

Netflix’s stock has suffered this year as the pandemic-era surge in user sign-ups faded and investors have turned away from high-value technology and growth stocks due to rising bond yields. Among other factors, co-CEO Reed Hastings blamed the subscriber shrinkage on “great competition” and the company’s estimate that more than 100 million households are streaming the service using a shared password without paying for it.

Netflix's moves to monetize password-sharers and roll out an ad-supported tier are unlikely to produce meaningful changes for its U.S. business in the near term. The firm lowered its price target on Netflix shares from $305 to $280 per share, citing expectations for much lower subscriber growth in 2022 and slower margin expansion.