4 Problems Plaguing Netflix Stock

In addition to cracking down on password sharing, competition in the streaming space has been one of the contributing factors impacting Netflix's (NFLX -3.92%) growth. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on May 11, Motley Fool contributor Brian Feroldi discusses four key issues facing the streaming giant today.

Brian Feroldi: Moving on to Netflix, which has had a rough go of it since they reported earnings, I guess, is one way of saying it. Here's an overview of what happened. Revenue grew 10%. That was below what Wall Street was estimating as well as below management's guidance. You wouldn't think that a company that stock is down this much is still growing revenue, but revenue is still growing. Earnings came in at 353, significantly beating Wall Street's estimate and management's own guidance. But nobody cares about any of this information because of this. Subscriber base declined by 200,000 sequentially and management was guiding for positive 2.5 million. If you look on each by geography, they were down in the U.S. and Canada. They were down in Europe, Middle East, and Africa. Although a whole bunch of that is due to the war and then pulling out of Russia. It was down in Latin America and it was up in Asia Pacific. What is going on at Netflix to cause this? Management had a couple of things going on. One, connected TV sales are down. That's because of the chip shortage. TV sales are directly tied to Netflix sign-ups and that is a persistent headwind. Two, while the company has over 220 million subscribers, they have 100 million password sharers out there, 100 million. About half of people that are consuming Netflix content are not paying for it. This is the first time they've ever given us insights into that. No. 3, competition. Competition is heating up in the streaming wars and TikTok and [Alphabet (GOOG 0.74%) (GOOGL 0.55%)] YouTube and all that stuff. There's more competition than ever. Then four, the big macro environment. When it comes to guidance, management is guiding for a negative 2.5 million subs in the upcoming quarter. Management is fully aware of what's happening and they actually painted some bright pictures about what they're going to do about it. One, they're going to start cracking down on password sharing. Now, are they going to get 100 million people to all of a sudden become Netflix paying? No, that's not going to happen. But could they send out a note saying we've noticed you're sharing your password, you continue to do so, it's going to cost you five more dollars or something like that? Is there a way to monetize 100 million people that are using Netflix but aren't paying for it? I think the answer is yes. Management also said, we're finally giving advertising supportive revenue viewing options a try. I think there's a big audience out there, people that want to pay $2.00, $3.00, $5.00 a month, whatever it is, and still watch ads to get access to Netflix's content. That could potentially help a whole new market opportunity for them. None of that matters right now. The only thing the market cares about is growth is slowing, but management is aware of the problem. It makes complete sense, given what I just said, why these shares have been down, hit so badly.