Netflix (NFLX 2.51%) will report first-quarter 2022 earnings on April 19. Investors will be zoomed in on subscriber totals.
The streaming pioneer's stock has crashed so far this year on fears of slowing customer additions. Economic reopening is slowing demand for in-home entertainment, and a slew of new streaming services is increasing competition. Let's look at what the expectations are heading into the first-quarter report.
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Competition is slowing subscriber growth
As of Dec. 31, Netflix claimed 222 million streaming subscribers. The first quarter is typically a robust period for adding new members. This year might be a little different. Management guided investors to expect 2.5 million subscriber additions in Q1, far lower than its average in previous years' Q1.
The deceleration can be attributed to two primary factors mentioned earlier. The coronavirus pandemic created a surge in demand for in-home entertainment, and Netflix was a beneficiary. It attracted many subscribers who were previously on the fence about joining Netflix. Now that economies are reopening and entertainment options outside the home are increasing, some of those members are canceling their subscriptions.
Additionally, during the pandemic, several new streaming services were launched. To make matters worse, most competitors have priced their services below Netflix. The combination of factors is starting to harm Netflix's growth meaningfully.
Still, Netflix remains the dominant force in the industry and has reached a scale that will be difficult for others to match. Netflix earned $29.7 billion in revenue in fiscal year 2021 and spent $17 billion on content.
NFLX Net Income (Annual) data by YCharts
Several competing streaming services are losing money on the bottom line, and the lower prices are not sustainable. Meanwhile, Netflix reported $5.1 billion in net income in 2021 and $2.7 billion in 2020.
The headwinds from competition and economic reopening are likely to be a shorter-term problem rather than a longer-term one. Although competition is not going away in the future, its impact could diminish.
What this could mean for Netflix investors
Analysts on Wall Street expect Netflix to report revenue of $7.93 billion and earnings per share (EPS) of $2.90. If the company meets those projections, it would be an increase of 10.80% and a decrease of 22.67%, respectively, from the year-ago period.
Netflix stock is down 42% so far in 2022. The subscriber figures are the numbers that could most significantly move the stock price following the earnings release. A number above the 2.5 million expected for Q1 will undoubtedly be positive.
Regardless, the company's stock has been beaten down because of the aforementioned shorter-term problems. If Netflix reports mediocre or poor subscriber totals in Q1, it could be an opportunity for long-term investors to accumulate shares at bargain prices. The streaming wars are likely to produce more than one winner in the long run, and it is very reasonable to think Netflix will be one of them.
