Netflix stocks plunge 8% but ends on a positive in its quarterly reports. Wall Street analysts are torn on whether the streaming company can still achieve its forecast revenue for the year, even with the positive end to the quarter.
Netflix Stocks After Crackdown on Password Sharing
The drop was suspected to be stimulated by the crackdown on password sharing for the streaming giant. Previously, people can share passwords and log on to different devices simultaneously while sharing one password. However, Netflix announced some time ago that they will be prohibiting the sharing of passwords.
But to compensate for the loss of subscribers due to the restriction on password sharing, Netflix introduced a cheaper subscription plan that runs ads, which is a first for the company. People were initially attracted to Netflix precisely because unlike regular video sites and traditional television channels, it didn’t run ads. But the company hoped to get more subscribers with its cheaper fees with ads.
After the quarterly reports of Netflix stocks, Wall Street analysts said they expected higher revenue from the platform, and the reports weren’t up to the company’s projections.
Michael Nathanson, an analyst of MoffettNathanson said, “I think people expected a lot more revenue growth in the third quarter, plus there was the weakness in [average revenue per membership].” Steven Cahall from Wells Fargo also stated, “Buy-side expectations are high.”
Reassurance from the Company’s Executives
However, Spencer Neumann, the Chief Financial Officer of Netflix, explained that the company doesn’t expect immediate revenue from the ads they run in the cheaper subscriptions. That was a huge factor that the analysts were questioning. Neumann also said the streaming giant wasn’t actually expecting the revenue from the advertisers to come in this year. He said it should be a “gradual revenue build.”
“Most of our revenue growth this year is from growth in volume through new paid memberships, and that’s largely driven by our paid sharing rollout. It is our primary revenue acceleration in the year, and we expect that impact … to build over several quarters,” added Neumann.
Nevertheless, Wall Street people are still antsy about the growth of the streaming company. Possibly a huge factor for the uncertainty of Netflix stocks is the refusal of the company to share details on how much the ad tier contributed to the reported earnings.
Despite the mixed reactions from analysts and experts in the stock market, Netflix is still ahead of the competition. They did better this quarter than other media companies on the market. Because of the recent reports, the streaming giant was confident in projecting an $8.5 billion revenue for the third quarter. This is in line with their 7% increase goal annually.
The reported number of Netflix subscribers is 5.9 million as of writing. And it seems like the company has regained its footing after losing subscribers by the bulk last year when other streaming sites started to get popular.
Today, the people of Wall Street are still waiting on edge to see if the company will be able to achieve its projections next quarter.