As fears of a recession and the cost of living continue to rise, stocks across multiple industries have sunk in value throughout 2022. Netflix (NFLX +0.27%) has been one of the hardest hit, with its share price plummeting 60% since January.
A variety of events have occurred throughout the year, dragging Netflix's stock down. The company's dominance in an industry it essentially founded in 2007 with the launch of its streaming service has significantly diminished this year. What's left is a company that investors continue to doubt, despite its countless efforts to restructure its business.
The perfect storm
Netflix's stock has been battered and bruised in 2022 as it has had to contend with rises in inflation, consumers cutting back on discretionary spending, and increased streaming competition, which has vastly changed the landscape of the industry. Plus, comparisons against the company's all-time highs of a pandemic-ridden 2021 have only exacerbated its losses in 2022.
The streaming titan dominated the industry for over a decade, but an influx of platforms, such as Disney's (DIS 2.46%) Disney+, Warner Bros. Discovery's HBO Max, and Apple's (AAPL 1.45%) Apple TV+, have severely threatened Netflix's position in the market. In addition, while the COVID-19 pandemic boosted Netflix as home-bound consumers flocked to online entertainment services, lockdowns also accelerated the growth of newer platforms.
As a result, Netflix started the year by suffering its first subscriber losses in a decade, reporting a decline of 200,000 members in its first quarter. The losses sent shockwaves through the industry, with the company's stock plummeting 68% from January to April. Netflix's stock has marginally recovered since then as the company projected a further loss of 2 million subscribers in the second quarter of 2022 but later reported a more modest decline of 1 million.
However, Netflix's stock price continues to illustrate the continued skepticism of investors as the company fights to gain back confidence from Wall Street.
A fight back to the top
Netflix's fall from grace has kicked the company into overdrive as it has significantly altered its streaming strategy. After years of rejecting the idea of introducing ads to its platform, the company announced in July that an ad-supported tier was on the way. The announcement came as demand for low-cost, ad-supported streaming services grew, and platforms such as Comcast's Peacock and HBO Max saw steady growth with their advertising options.
The company's domination of the market before 2019 meant it could essentially name its price as one of the few streaming options. However, increased competition made the streamer considerably more expensive than Disney+ and Apple TV+, which launched between 48% to 68% less than Netflix's most popular subscription. Introducing an ad-supported option will make its offerings more aligned with the competition.
Netflix is putting its best foot forward with its advertising venture, bringing on, in September, former Snap executives Jeremi Gorman and Pete Naylor to head up the division as the president of worldwide advertising and vice president of ad sales.
In addition to advertising, Netflix has also heavily invested in its gaming business Netflix Games throughout 2022, having acquired multiple studios. The company is attempting to add value to its streaming subscription by offering a new content medium. However, its efforts have yet to pick up steam, as Apptopia reported in August that less than 1% of subscribers were engaging with Netflix Games after it launched in November 2021.
NASDAQ: NFLX
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The hits keep coming
Despite Netflix's efforts, investors continue to seem unconvinced. The company's stock lost another 5.3% on Oct. 11 after Goldman Sachs reduced its target price to $182 and Bank of America voiced concerns about the stability of Netflix's projected third-quarter subscriber growth, both organizations maintaining a sell rating.
Bank of America reaffirmed Netflix's forecast of adding 1 million new members in Q3 2022 but believes it will be primarily due to the success of Stranger Things Season 4, which will be a "tough act to follow." Moreover, the bank is not convinced the ad tier will be the savior it has been touted. Concerns stem from the possibility that ad revenue will not fully supplement a reduced subscription price and Netflix's new reliance on the advertising market, which is seeing declines as businesses slash budgets.
Speculation on the success of Netflix's coming ad-supported membership has run rampant since it was announced. Just last month, Macquarie analyst Tim Nollen speculated the company could earn $3.6 billion in revenue from the advertising offering and raised his recommendation from sell to neutral. Netflix also recently announced it will charge $6.99 for the new service.
While consumer demand continues to fall as the cost of living rises, it might be best to hold off on investing in Netflix -- at least until the impact of its recent changes become more apparent and its ad-supported tier launching in November is more realized as a win or fail.
