Being the most prominent “stay-at-home” stock since the early stages of the pandemic, Netflix seemed an attractive investment over a long period of time. People spent a whole lot of time at home, in front of their TVs, so this was only natural. Impressive subscriber growth figures, new exciting movies, and improving financial conditions acted as a tailwind for the company in 2020 and 2021.
Hold on before you initiate an MT5 download and put all of your eggs in the Netflix basket, though. You’ve probably heard that the NFLX stock has been under heavy pressure as of late. Do you know why? Let’s take a look at some of the reasons for that, and try to understand the direction in which this stock is going.
Alt-text: Netflix stock in 2022
Entering the gaming industry
At the beginning of November 2021, the popular streaming service introduced Netflix Games. Available on mobile devices, it marks a new turning point for this company, which continues to look for ways to draw new subscribers, as well as lure existing ones to spend more time on its app.
This comes on the back of increased competition from Disney, Amazon, and HBO, which are now also in the streaming business. Even though Netflix has been around for more than a decade and now boasts around 222 million total subscribers and counting, competition is biting at its back and affecting the stock’s value.
Towards the end of January 2022, Netflix controversially announced it is going to raise subscription fees. This did well for the stock price at first, and NFLX jumped 2% on the day of the announcement, as investors expected higher revenues.
However, compared to a few years ago, Netflix is now spending a whole lot more on creating content around the world. In 2021 the company spent $17 billion, up more than $5 billion from the 2020 figure. That’s why higher fees do not necessarily translate into revenue. You should also keep in mind that the bump in subscription prices affects the US and Canada mainly, where the company is struggling to attract new customers.
NFLX stock price performance
Those interested in trading the NFLX stock should pay close attention to how it reacts to earnings. The last earnings release acted as a major drag on the stock price. In fact, this asset has been under heavy pressure since mid-November 2021, and peak to through, it lost around 50% of its value.
Capital is shifting from growth stocks, including Netflix, to cyclical sectors such as industrials, financials, and energy. The economic reopening, the higher inflation, and the prospects for higher interest rates in 2022 are not good news for tech stocks.
Add to that the disappointing subscription growth reported by Netflix, and you’ll see the bigger picture more clearly. Investors might fear that the company is no longer able to grow at an impressive pace in the near future, which will trigger yet another aggressive repricing of the stock.
On the bright side, NFLX now poses a more attractive valuation after the drop. Bill Ackman, the founder of Pershing Square, recently announced that the company bought an important stake in Netflix, becoming one of the entertainment giant’s largest shareholders. Despite a lack of interest in tech stocks in the short term, some analysts still believe that the growth sector can continue to expand in the upcoming years since there’s a limit to how much interest rates can rise.