Netflix Sheds $24 Billion in Value in Six Days After Growth Miss

Ted Sarandos - Getty - H 2019
Charley Gallay/Getty Images for Netflix

The heavy volume of trading over the past nine days suggests many investors are cashing in on their big gains.

Netflix's disappointing quarter reported last Wednesday has caused the streaming darling of Wall Street to shed more than $24 billion in value in six days as the stock has sunk 15 percent.

Shares of Netflix have now fallen each of the last nine trading days, as the stock began its downfall even before it released its quarterly financial report, which indicated it lost subscribers in the U.S. for the first time since launching its streaming service nearly a decade ago. Netflix also disclosed last Wednesday that it added just 2.7 million subscribers worldwide, while it had previously anticipated adding about 5 million in the quarter.

Netflix's largest fall in recent days came last Thursday when the stock dropped 10 percent, knocking $17 billion from its market capitalization. The stock closed Tuesday down $3.32 to $307.30, a price that leaves it with a market cap of $134.5 billion.

To be sure, longtime holders of Netflix stock have profited mightily as its shares have surged 3,300 percent in less than nine years, but analysts don't expect anything near that sort of return going forward, and the heavy volume of trading over the past nine days suggests many investors are cashing in on their big gains.

Was the "crack in the growth trajectory a soon-forgotten hiccup or sign of things to come?" asks Vijay Jayant of Evercore ISI. The analyst expects shares of Netflix to rebound to $380 sometime in 2020, but that's less than where they traded two weeks ago.

In January, Netflix raised its domestic prices by 13-18 percent, depending on the subscriber plan, and the increase is the presumed culprit for falling subs in the U.S. while revenue was not a problem during the quarter.

On the horizon, of course, is more competition coming from Disney, Apple, WarnerMedia, NBCUniversal and others, which will lead to Netflix having to create more of its own content as it loses access to a lot of third-party movies and TV shows, and Jayant says: "We continue to see the proliferation of new internet TV services as a bigger threat to Netflix's content costs than subscriber growth."

Meanwhile, The Diffusion Group says it is a good time for Netflix to consider an inexpensive pricing tier that would include ads, as one of its recent polls indicate that 32 percent of users would be interested in such a plan.

"Given the rising costs of programming and growing debt, so goes the argument, it is just a matter of time before the company makes such a move," says the research firm.

Amazon Prime Video is free with a subscription to the retailer's delivery service, Hulu has an ad-based option and Disney+ will cost just $7 a month when it launches in November, notes TDG's Michael Greeson.

"With half or more of [Netflix's] most-viewed shows being owned by three studios, each of which is launching their own DTC services, how long can you convince 55 million-plus U.S. consumers that your service is worth paying a premium price?" says Greeson.