US investment bank JP Morgan is cutting its price target for Netflix’s stock by nearly 50% this year. The streaming service is facing increased competition in the on-demand video space and is likely to face major headwinds. As such, JP Morgan has downgraded Netflix into a bearish outlook. Netflix stock has plummeted in recent days. The company announced that it had lost subscribers for the first time in a decade.
According to documents filed by the streaming service, nearly 200,000 subscribers had canceled their membership during the first quarter of 2022. This was a sharp contrast to Netflix's expectations where it had hoped to add at least 2.5 million new subscribers to its service.
But things are not looking rosy. Netflix estimates that it may lose another 2 million subscribers during the current quarter. The streaming service notes that increasing inflation has been one of the key drivers of slowing growth.
As prices of basic commodities go up sharply, many people find it harder to afford subscription services. But many experts feel that Netflix has peaked and as more and more streaming services come in, it will be very hard for it to keep up. Shortly after the loss of subscribers was announced, Netflix’s stock dived. It lost nearly 40% in one single day.
At one point the stock price touched the lowest price recorded since 2018. JP Morgan was relatively bullish about the company in 2022. It had predicted that the coin will close the year above $605. But the recent data is changing the outlook massively. As of now, JP Morgan expects Netflix to end 2022 at $300. Although this is higher than the current stock price, it is nearly half the initial prediction of $600.
The investment bank also noted with concern that Netflix had "ticked all the boxes" you would expect from a bearish asset. This suggests that more pain is ahead for investors. Despite this, Netflix is trying to address some of these challenges. For example, to tackle the growing concerns about its high prices, the streaming platform is considering bringing in an ad-supported version.
This will be heavily discounted and users will have to watch ads. Netflix had often resisted the idea of adding ads into its streaming to give users the best possible experience. But a lot of consumers would welcome an ad supporter version of Netflix if it means paying lower monthly fees.
The streaming service has also been trying to expand its reach in emerging markets through innovative packages. More importantly, though, Netflix is cracking down on password sharing across accounts. The company sees this as a huge barrier to increasing its revenues.
If indeed it can do it, there may be some reprieve for investors in the end. However, the long-term outlook for Netflix remains bleak. The company will now have to deal with so many competitors in a market that appears to be shrinking every day.
