Even after recovering a bit from its October lows, the S&P 500 is still down more than 19% this year, which is understandably making some investors reexamine the theses for many of their stock holdings. In the streaming industry, companies such as Walt Disney, Paramount Global, and Warner Bros. Discovery have all seen their valuations shrink in 2022 by more than 40%.

Netflix (NFLX 0.21%) has also taken a big hit to its market cap this year -- the stock is down 52% as of this writing. But considering that it's still the most popular subscription video-on-demand (SVOD) platform in the world with just over 223 million customers at last count, is Netflix a buy right now?

Correcting course

Netflix had a rough start to 2022. In the first quarter, the streamer lost 200,000 subscribers -- its first such loss in more than a decade. And if stakeholders were wincing at that figure in its first-quarter report, the company had even more bad news. Management projected it would lose an additional two million customers in the second quarter. Investors reacted swiftly, bidding Netflix's share price down by some 25%.

Fortunately for Netflix, that first-quarter report was about as bad as things would get in 2022. It still saw a net subscriber loss the following quarter, but the one million reported was significantly smaller than expected. But perhaps the most promising news from the first half of the year was that management was implementing twin strategies to deal with its subscriber attrition problem.

The 100 million password-sharing problem

Netflix made headlines in April when it announced it would crack down on account sharing between households. Speaking on the first-quarter earnings call, Netflix founder and co-CEO Reed Hastings posited that there were over 100 million households accessing the platform without paying for it. "They love the service," noted Hastings. "We just got to get paid at some degree for them."

Netflix subsequently launched a trial in several Spanish-speaking countries under which it charged subscribers an additional fee if it determined their accounts were regularly being used to access the streaming service from multiple households. The pilot program has not been without controversy. Some have questioned what constitutes a "household," while others say they have been penalized for viewing Netflix content while they were away from home. Despite the criticisms, Netflix says it is committed to tackling password sharing in more countries next year.

The company faces many challenges in enforcing its account-sharing policies, not least of which is the risk of customers simply balking at being charged extra for something they've always been doing without penalty. While Netflix has kept its sharing fee relatively low (account-sharing subscribers in its test markets are paying roughly $3 extra per month), some may refuse to pay. And if the streamer pushes the issue with them, it could risk losing those households entirely.

Launching an ad-supported tier -- amid an advertising downturn

The second aspect of Netflix's plan to grow its subscriber and revenue bases was the decision to introduce a lower-cost ad-supported tier.

Netflix rolled out its $6.99 per month Basics with Ads offering in November. So far, the company has not disclosed how many people have signed up for that plan, but recent reports are less than encouraging.

According to a Digiday article, multiple sources say Netflix is returning money to advertisers, because the ad viewership numbers have not met expectations. The article said Netflix's audience for ads thus far has been roughly 80% of what it previously projected, necessitating refunds to marketers with yet-to-fully-run ad inventory.

In that light, shareholders are right to be concerned about just how effective Netflix's turnaround efforts will be.

Even before the streamer launched its ad-supported tier, companies such as Roku warned that macroeconomic conditions were contributing to a softening of the TV advertising market. And with many economists anticipating a recession in 2023, it's difficult to imagine the downward trend in advertising spending will reverse in the near term.

Netflix as a potential buy

For investors attempting to evaluate Netflix's prospects, the uncertainty surrounding its growth plans is certainly palpable.

The vast majority of Netflix customers who share their accounts have yet to see an added fee for the privilege on their bills, and as things stand, it seems the initial roll-out of the streamer's ad-supported tier has failed to meet expectations. Of course, it may be that once Netflix starts enforcing its password-sharing policy, a lot more people will join the ad-supported plan as a consequence -- perhaps including many fans of the service who will lose their long-standing free access to the accounts of friends and relatives.

But will that be enough to make a difference to Netflix's bottom line? Right now, it's too early to say.

Investors considering this stock would be smart to postpone a decision until they've seen Netflix's fourth-quarter results, which will be delivered in mid-January. That report will likely provide some insight into how its Basic with Ads plan is performing, and management may at that time offer more details on its strategy to crack down on account sharing. Having those details in hand could certainly help investors better understand Netflix's long-term promise, but without them, the stock may be too risky a buy for some.