What is happening to Netflix

If you have read some of our weekly newsletters, there are a few companies we refer to as “Covid-dized”. Simply put, these are companies that have benefited significantly from the compulsory stay-at-home Covid-19 mandate. Some of these companies include Peloton Interactive, Zoom Video Communications, Netflix, among others.

At the peak of the pandemic, during the second quarter of 2020, Netflix added more than 10 million new subscribers, however, things are beginning to take a different approach for the company as more people feel confident enough to move around and return to work. Re: vaccinations and stimulus checks. The company is expecting to add only 1 million new subscribers in the second quarter of 2021.

Netflix had raised its monthly subscription in October 2020 from $13.99 to $17.99, while rivals such as Hulu have monthly plans as low as $5.99. This market boom helped the company report better than expected earnings per share. Netflix reported first-quarter revenue of $7.16 billion, earnings per share (EPS) of $3.75, and 3.98 million net new subscribers. 

While it beat expectations in revenue and EPS, most analysts were looking for 6.4 million new users, which the company could not deliver. Most investors are now worried and are not sure how the reopening of the economy and people returning to offices will affect both the growth and profitability of the company going forward. [Dare I say… fair enough?]

Since the announcement on Tuesday, shares dropped by 9% and traded at $508 (-7%) on Wednesday. The company is still spending big on new content, including a hefty deal worth more than $400 million for two sequels to the popular Knives Out movie. Another bone to shareholders: Netflix will buy $5 billion of its stock, starting now.

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