- Netflix is tackling competition, uncertainty in Europe and tightening consumer spending
- It is likely that worsening macro conditions will continue further into 2022
- Uncertainty still governs the market, FY outlook will be critical in Neflix's Q1 call
Netflix once held an undisputed crown, reigning over the world of digital streaming with little to no market pressure and consistent domination. Recently though, the company had a wake-up call in the form of worrying subscriber data. Late last year, investors sold Netflix shares in the wake of competitive headwinds.
This year, investors are choosing to sell on the cold-hard data that shows Netlfix’s growth is dwindling; illustrated graphically by a lackluster Q1 subscriber projection. With subscribers acting as the critical metric for investors, let's see how the company is shaping up ahead of its Q1 earnings report in a couple of weeks' time.
One thing that throws off investors is a slowing curve. Q4 outlined that Netflix clearly isn’t growing as fast as it once was; the company announced it expects just 2.5M subscribers, significantly lower than 3.98M the previous year. If the company didn’t have enough already on its plate, rising macro-concerns from geopolitical pressures have limited traction in Russia, whilst inflation is still weighing on consumer trends in Europe and beyond.
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Stifel analyst Scott Devit lowered Netflix’s price target to $460 from $500 but holds a Buy rating. Although Devitt maintains his previous revenue estimations based on ‘in-line’ data, he cites that a loss of Russian subscribers and disruption in EMEA has the potential to limit a strong upside in subscriber growth. Again, it is likely that worsening macro conditions and the aura of uncertainty will sit on the tail of Netflix further into 2022.
Similarly, Baird analyst William Power also focuses on uncertainty in Europe as a key headwind for Netflix, especially in the short term. Inflation is settling over EMEA, meaning that consumer spending is more restricted in the face of soaring energy prices and wider rising costs. While this could be a transitory hurdle, Power argues that it could still muddy the subscriber growth outlook.
Uncertainty governs current markets, so we can expect investors to act accordingly towards Netflix’s Q1 earnings. Management should attempt to clear the fog regarding Europe, whilst addressing tightening consumer habits.