Netflix’s stock has been under a lot of pressure since the company announced its quarterly earnings. Netflix announced $7.2 billion in sales and $3.75 per share in GAAP profitability, surpassing expert forecasts on both earnings and revenue.
While the financial performance exceeded forecasts, the rate of subscriber growth disappointed the market. In the first quarter, the firm added 3.98 million global streaming premium subscribers, compared to its earlier expectation of 6 million. In addition, in the second quarter of this year, Netflix plans to gain just 1 million premium worldwide streaming subscribers.
“Paid membership growth slowed owing to the significant Covid-19 draw forward in 2020 and a weaker content slate in the first part of this year, due to Covid-19 manufacturing delays,” according to the firm. Netflix also predicted a good second half of the year when new seasons of its most popular series were released. According to the business, streaming continues to gain market share from linear TV, which has been a long-term trend in the entertainment industry.
Netflix is expected to generate earnings of $9.89 per share this year and $12.99 per share in 2022, so even with the recent sell-off, the company is selling at a forward P/E of around 40. Businesses must fulfil growth objectives at such valuation levels, or their shares will rapidly come under pressure, as happened with Netflix.
Some experts have already upgraded the stock, citing the possibility of purchasing Netflix shares in the market to current levels. The digital streaming platform will, however, need to demonstrate a clear route to understand and sustained growth in the face of fierce demand in the local market and increasing rivalry in the foreign market.