The introduction of multiple streaming services since 2019 has hit few companies as hard as Netflix (NFLX 4.17%). In 2022 alone, the company has lost over a million subscribers. The stock price dropped 35% in a 24-hour period from April 19 to April 20, falling a further 26% by May 11. The company has had a tumultuous year, to say the least; however, recent growth in the stock and future developments could mean Netflix is set to make a comeback in the second half of the year.
Reclaiming losses
A rocky start to 2022 saw Netflix lose a record 200,000 subscribers in the year's first quarter, projecting a further loss of 2 million members in Q2 2022. However, the company reported a more modest loss of 970,000 subscribers in its second-quarter report, primarily driven by the immense success of Stranger Things Season 4, which Netflix released on May 27. The show's popularity aided the company in retaining more than a million members as it restructured its business to better suit the altered landscape of the streaming industry.
Netflix stock has steadily begun climbing again as investors slowly restore their faith in the streaming giant. Over July, the stock rose 28.6% as the company projected it would reach an all-time high of 221.67 million global subscriptions in Q3 2022, bringing an end to the membership declines prevalent throughout the first half of the year.
The first two weeks of August have seen Netflix stock continue its rise, with stock prices increasing 10.1% from August 1 to August 15 -- from $226.21 a share to $249.11. While Netflix investors are laser-focused on subscriber numbers, it is the company's venture into ad-supported services, password-sharing crackdowns, and gaming that will make a more significant impact on revenue.
A promising outlook
Netflix's significant loss of subscribers in Q1 2022 lit a fire under the streaming giant as it realized it had to adapt or die in a market with steep competition such as Disney (DIS 1.54%) and Warner Bros. Discovery. As a result, Netflix has made multiple changes to its streaming strategy in 2022 as it fights to retain its spot at the top.
The company plans to launch an ad-supported tier in early 2023, introducing a desperately needed lower price point. Netflix's current memberships offer the worst value when stacked up against the competition, with its basic tier giving subscribers one standard-definition (480p) stream for $9.99 a month, its standard membership allowing for two simultaneous HD (1080p) streams for $15.49 a month, and the premium tier providing consumers 4K quality video with up to four streams for $19.99 a month.
Meanwhile, Disney+, HBO Max, and Apple's Apple TV+ have all made HD to 4K quality video and multiple streams standard across all of their tiers. Netflix's competitors have raised the bar, with Disney+'s recently announced price hikes still providing more value. As of August 23, premium membership to Disney+ will cost $10.99 per month with no ads, 4K quality video, and up to four streams -- 29% cheaper than Netflix's standard tier. That's also before considering the Dinsey Bundle, which includes Disney+, Hulu, and ESPN+ for $12.99 a month with no ads and is 35% cheaper than Netflix's highest-priced membership.Suffice it to say, Netflix's coming ad-supported service will even the playing field and offer more value to consumers.
Additionally, Netflix has plans to increase its average rate per user (ARPU) by cracking down on password sharing. Going by its recent password-sharing test in Cost Rica, the company could soon charge consumers $2.99 to add an extra household to their membership. In April, Netflix estimated that more than 100 million households worldwide currently use the streaming service without paying. If only half of the password-sharing users were converted to fully paid subscriptions, the company would add $150 million in quarterly revenue.
Is Netflix a buy?
While Netflix's subscriber figures were once the most important metric for investors to gauge the company's success, a shift in the streaming market has made a company's ARPU an increasingly telling data point. For instance, Disney investors recently celebrated the company surpassing Netflix in total subscribers. However, digging into the company's ARPU shows that Disney's streaming revenue is still considerably behind Netflix. In its most recent quarter, domestic Disney+ made 39% as much revenue per user as Netflix, with Disney's ARPU in the Asia Pacific region at $1.20 per month while Netflix's stood at $8.83 per month.
Netflix stock still has a long climb back to where it was a year ago, making its current price an absolute bargain, especially considering the stock will likely continue rising based on its recent moves and coming developments.
