This year is shaping up to be a leader in events that haven't been seen in decades -- not just inflation, gas prices, and interest rate hikes, but the stock market itself is off to its poorest start in 50 years. The S&P 500 is sitting 17% below where it started the year. And everyone thought 2020 was bad.

Yet as difficult as it's been for stocks generally, none is having a worse time than Netflix (NFLX 1.74%), which is the worst-performing stock in the broad market index, with shares down over 63% year to date. Shocking subscriber losses were the primary fuel that lit the fire to the streaming video stock's valuation. Maybe the destruction of shareholder value was justified, but has it gone too far? 

Netflix is still the biggest streaming service globally and says next quarter it will recoup the 1 million subscribers it lost this time around. It's still a powerhouse in the industry, so should investors be looking at buying this beaten-down streaming giant, or does it still have further to fall?

Person watching movies on laptop.

Image source: Getty Images.

Trimming the streaming fat

Netflix shocked the market earlier this year when it reported a loss of 200,000 subscribers, though it noted it was primarily due to exiting Russia following that country's invasion of Ukraine. That still meant its numbers would have been flat after promising it would add 2 million new subscribers -- not very encouraging.

That could be why Netflix braced investors for the second quarter, when it said it might lose anywhere from 2 million to 4 million subscribers. As it only lost 970,000 subscribers, it looks like a win, particularly after saying it will win back at least that many in net additions in the third quarter. 

So what's changing that will improve its prospects?

Not worth the cost

Netflix maintains content is the reason viewers will come. Pointing to its hit series Ozark and Stranger Things, plus the original programming The Gray Man that just debuted, Netflix says it is committed to increasing entertainment value on the platform.

It's about time, because anyone who's watched Netflix in recent years knows that after movie studios yanked content to supply their own competing services, the Netflix menu was filled with vast oceans of dreck. It adopted a quantity-over-quality mindset to cover the fact that so much content had been removed from the platform, and it's likely what is hurting the service now.

That could be a difficult hurdle to get over. Variety reports that while Netflix is still the leading, must-have streamer, customers also rank it dead last in perceived value. Warner Bros Discovery's HBO Max and Disney's Disney+ are the No. 1 and No. 2 services in the value chain. 

Strategies to turn viewership around

Netflix is also counting on the addition of an advertising-based subscription tier to further bolster its business. Though it long rebuffed the idea of adding ads to its service, the success of other streaming services like Hulu that have done this likely cemented Netflix's decision to do the same.

Its pricing is far higher than the competition's, which also undoubtedly hurts it in customer satisfaction scores, so the addition of ads will allow it to be more competitive on price among those who don't want to be paying $15 to $20 per month.

The risk, of course, is that Netflix ends up cannibalizing its primary streaming tiers. A Civic Science survey suggests that up to one-third of existing full-price subscribers would switch to a cheaper, ad-supported tier, potentially impacting revenue. Not to mention that there's a bit of concern after social media company Snap reported earnings that were hit by lower ad spending. Advertisers are starting to rein in their budgets, which represents poor timing for Netflix.

Wait for better quality

Yet, Netflix stock isn't cheap by traditional metrics. It trades at 21 times trailing earnings and 18 estimates, which may be discounted for the streamer but don't necessarily represent bargain-basement valuations for a stock that's lost two-thirds of its value.

At three times revenue and with earnings expected to grow 12% annually for the next five years, it seems the market may believe the streaming service stock is at best fairly valued, if not still on the high side. There may come a time when Netflix does bust out once more, but investors might want to wait to see if any of its initiatives actually hit their mark.