Netflix shed $46bn in market value on Wednesday after gloomy quarterly subscriber figures sparked a steep drop in its shares that also spread to rival streaming groups.
California-based Netflix said late on Tuesday that its decade-long run of subscriber growth had drawn to an end in the first quarter of 2022 and that it had become “harder to grow membership” in many markets.
In an earnings update the streaming company projected that subscriber numbers would drop by another 2mn in the current quarter, having already fallen about 200,000 in the previous three months.
Netflix shares lost as much as 30 per cent after the opening bell on Wednesday.
The “sea-change quarter” prompted JPMorgan to cut its recommendation on Netflix from “overweight” to “neutral”, with analysts at the US bank flagging up concerns over account sharing, market saturation and mounting competition.
Netflix’s announcement also hit the shares of other television and film subscription companies. Walt Disney, owner of the Disney Plus streaming service, fell more than 4 per cent, while streaming platform and hardware business Roku dropped about 7 per cent. Music streaming service Spotify slid more than 7 per cent.
Streaming services and stay-at-home stocks had “lost a lot of value over the last few months”, said Patrick Armstrong, chief investment officer at Plurimi Group. “The market was expecting this but nobody expected the [Netflix] subscriber losses to be as dramatic as they were.”
The US S&P 500 index bucked the fall in Netflix shares, rising 0.5 per cent in early trading. The tech-heavy Nasdaq Composite ticked up 0.1 per cent.
In Europe, the regional Stoxx 600 gauge added 0.8 per cent in afternoon dealings, reversing the previous day’s fall.
In government debt markets, the yield on the 10-year US Treasury note dropped 0.03 percentage points to 2.89 per cent.
A sell-off in the previous session took the 10-year “real yield” — which is adjusted to reflect medium-term inflation expectations — into positive territory for the first time since the coronavirus crisis in March 2020. It hovered at minus 0.03 per cent on Wednesday morning.
Bond yields rise as their prices fall.
Real yields have jumped this year on expectations of the Fed tightening monetary policy in a bid to curb surging consumer price growth, which reached an annual 8.5 per cent last month. Those climbing real yields have, in turn, reduced the appeal of — and exacerbated pressure on — riskier parts of financial markets, including more speculative tech and media stocks.
This week’s yield moves come during a string of speeches from senior Fed officials, with Fed chair Jay Powell due to speak on Thursday. Already, Charles Evans, Chicago Fed president, has said the central bank is likely to raise interest rates to between 2.25 per cent and 2.5 per cent by the end of the year. James Bullard, president of the St Louis branch of the Fed, also said a jumbo 0.75-percentage-point rate increase may come at some point in 2022. The Fed’s current benchmark interest rate is 0.25-0.50 per cent.
Additional reporting by Ian Johnston
