Netflix Inc (NASDAQ:NFLX)’s share price has dropped 70% since the start of the year as it battles heavy subscriber losses and a decline in app downloads.
The streaming service is due to announce results for the second quarter on Tuesday and analysts question whether the streaming services powerhouse can deliver positive growth in the second quarter, amid the ongoing impact of the cost-of-living crisis and a projected decline in subscriber numbers.
In April, it shocked the market by revealing it had lost 203,000 subscribers during the first quarter of the year and that it expected to lose another two million paying subscribers in the subsequent three months.
“The combination of increased competition and consumers’ cutting back on discretionary spending as higher bills, fuel and energy costs hit home is partly to blame, alongside tighter control of household password sharing,” said AJ Bell analysts Russ Mould and Danni Hewson.
Co-chief Reed Hastings said Netflix would deliver 10% sales growth in the second quarter, despite the massive projected losses in subscribers, forecasting a full-year operating margin of 19-20%.
While Netflix was considered an early winner of the coronavirus lockdowns, analysts blame its recent fall from grace on cutbacks in discretionary spending among its customers.
Haunted by the cost-of-living crisis, many households will struggle to afford television network costs, with the retailer already battling widespread password sharing among its users.
Netflix estimates that approximately 100mln households are sharing passwords to its services, about half as many as its 222mln paying subscribers.
According to investment bank UBS’s analysis, Netflix app downloads have fallen 9% compared to the second quarter of 2021.
UBS Evidence Lab data recorded a 17% decline in downloads of the Netflix app in the United States and Canada and a 15% drop in year-over-year downloads in the Asia Pacific region.
This was coupled with 9% growth in Latin America and 7% in Europe and the Middle East.
Netflix still holds about 60% market penetration of US households with broadband, rising to 80% when password sharing is included.
Analysts say most of the streaming service’s future growth is expected to come from price increases and new forms of monetisation, such as advertising and a possible move into gaming.
Barclays predicts that Netflix still has the potential to become a scaled entrant in ad-supported streaming if it can compete with television advertisers on cost.
However, cable providers and broadcasters could be under structural pressure if there is another downturn.
Affiliate fee growth could even turn negative if not just flatline in the next couple of years, Barclays said.
Its analysts warn that the world is now a very different place than when Netflix was valued at US$1.5 billion in 2007, due to the acceleration of cord cutting and the need for investment, combined with a higher cost of capital and cash flow pressure at many media companies.