Netflix Tanks 7.26% on Tepid Forecast, New Support on the Way

Netflix Inc. ( NFLX ) experienced a sharp decline in share value on Friday as a result of its weak revenue forecast and plans to discontinue reporting subscriber numbers by 2025. Despite an otherwise strong start to the year, Netflix's lackluster forecast led to a 7.6% decline in premarket trading in New York, marking the biggest decline since July 2023. While the company surpassed expectations for its first quarter, it indicated that it expects a slower pace of growth moving forward, with subscriber gains anticipated to be lower and revenue expected to increase by 16%.

Netflix's decision to cease reporting quarterly membership and revenue per subscriber metrics from the first quarter of next year has also generated concern among industry analysts. These metrics have long been the primary way in which Wall Street has assessed the company's performance, and as such, the decision may be met with resistance. Netflix has sought to shift the focus to traditional measures of performance, such as sales and profit, but management will continue to report significant subscriber milestones.

Despite a slowdown in 2021 and 2022, Netflix ( NFLX ) has experienced its fastest growth rate since the early days of the pandemic, largely due to its crackdown on account sharing. The company estimated that over 100 million people were using an account for which they did not pay, and by convincing these individuals to pay for access, Netflix has added 9.33 million customers in the first quarter of 2024, nearly doubling average analyst estimates of 4.84 million.

Netflix's strong slate of original programs has also contributed to its recent growth, with the company delivering a new hit every couple of weeks in 2024. The streaming service accounts for about 8% of TV viewing in the US and is a leading TV network in most of the world's major media markets. The company's recent performance has lifted its shares back toward record highs, giving it a market value of more than $260 billion.

While some analysts have raised concerns that Netflix is trading at a valuation that exceeds the fundamentals of the business, others have been impressed with the company's performance and have raised their price targets for investors. To sustain its growth in the future, Netflix has introduced a cheaper, advertising-supported version of its service targeting cost-conscious customers and has invested in live programming, including stand-up specials, wrestling, and an upcoming boxing match. The company has also reported that approximately 40% of its new customers are selecting the advertising option in markets where it is available, although the advertising tier remains small in comparison to online video giants like YouTube.

Technical Outlook
Netflix ( NFLX ) stock has broken the ceiling of the rising trend channel on the verge of reaching a new support level at the $504 Pivot point. The stock is trading with a weak Relative Strength Index (RSI) of 25.75 indicating NFLX stock is in the oversold territory. Traders need to be careful incase of a trend reversal after reaching the new support zone.