Netflix closes down 35% wiping more than $50 billion off market cap

Shares of Netflix closed down more than 35% Wednesday after the streamer reported earnings Tuesday evening that showed it lost subscribers for the first time in more than 10 years. The results and weak outlook led to a wave of downgrades from Wall Street on fears over the company’s long-term growth potential.

The drop caused Netflix to shave more than $50 billion off its market cap. It is now the worst-performing stock of 2022 in the S&P 500, down 62.5% year-to-date.

Netflix said several headwinds are affecting growth, including increasing competition and the lifting of pandemic restrictions. The video streamer’s business benefited from coronavirus stay-at-home orders, with more people seeking out digital entertainment. But in recent months people have been spending less time on digital platforms as vaccines rolled out and mandates eased.

Slower household broadband growth also played a role in the company’s weak forecast. Netflix estimated that 100 million households are sharing their subscription passwords with other family or friends. 

The company, in a effort to boost growth, said it’s considering a lower-priced ad-supported tier and suggested a crackdown on password sharing is coming. And while analysts seemed generally upbeat about these changes, they noted that it wasn’t a short-term solution to the subscriber base problem. 

“Although their plans to reaccelerate growth (limiting password sharing and an ad model) have merit, by their own admission they won’t have noticeable impact until ’24, a long time to wait on what is now a ‘show me story,'” Bank of America analysts said in a Wednesday note. The firm was one of at least nine companies to downgrade Netflix on the disappointing report. 

“After what can only be called a shocking 1Q subscriber miss and weak subscriber & financial guidance we reduced our subscriber forecasts and pushed back our profitability forecasts substantially,” Pivotal analyst Jeffrey Wlodarczak wrote in a Tuesday note. The firm downgraded the stock to sell from buy.

Wells Fargo analysts wrote in a Wednesday note that downgraded the stock to equal weight that “negative sub growth and investments to reaccelerate revenues are the nail in the NFLX narrative coffin, in our view.”

Several streaming services’ stocks took a dive Wednesday morning along with Netflix as investors wait for updates on their growth. Shares of Disney closed down about 5.5%. Similarly, shares of Roku closed down more than 6%, Paramount stock slumped 8.6% and Warner Bros. Discovery slipped by about 6% on the day.

“Gross adds activity continues to be softer than expected, as such, subscription companies could see similar pressures throughout this earnings season, though we note NFLX is unique in that it is much more penetrated, particularly when accounting for password sharing,” Wolfe Research said in a Tuesday note. The firm maintained its outperform rating.

—CNBC’s Michael Bloom contributed to this report.