Here’s why the Netflix share price is plunging 25% in after-hours trading

A 10-year track record has been broken for Netflix, leading to a 25% fall in its share price…

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Key points

  • The Netflix share price is down 25.7% to US$258.90 in after-hours trade 
  • A miss on revenue and net subscriber count has left investors questioning future growth potential 
  • Netflix forecasts a further 2 million subscribers to leave in the next quarter 

A disappointing first-quarter result from Netflix Inc (NASDAQ: NFLX) has sent the share price off a cliff in after-hours.

Following the closing bell, shares in the world’s largest streaming platform fell unceremoniously. The response to Netflix’s first-quarter result played out in the destruction of US$40 billion of market capitalisation as the stock crashed 25.7% to US$258.90.

The main culprit behind the negative reception appears to be a key metric that left investors shocked.

Is the growth story coming undone for Netflix?

Unfortunately for the Netflix share price, the latest quarterly result left the market wondering whether the ‘N’ in “FAANG” stocks has lost its bite.

Standing out like two sore thumbs were the revenue miss and, more notably, the net subscriber miss. Firstly, analysts had expected US$7.95 billion in revenue for the streaming giant but were given US$7.87 billion.

However, it was the 200,000 net subscriber reduction signalling alarm bells in after-hours. Prior to the result, analysts were forecasting an increase of 2.51 million subscribers during the quarter. Obviously, the stark contrast has created concerns among investors.

The fall in net subscribers has attracted plenty of attention, being the end of a decade-long stint for subscriber growth at Netflix. As such, the unwelcomed milestone has prompted a dramatic correction in the Netflix share price.

To its credit, the company had no trouble admitting the streaming industry is becoming a competitive space. What was once Netflix and a few smaller rivals has exploded into countless offerings; as traditional media adopts what has now become a relatively established technology.

What else is playing on the Netflix share price?

Netflix highlighted that the near-term outlook is unlikely to see much of an improvement.

For example, Q2 FY22 forecast shows revenue growth slowing again to 9.7% year on year — hitting US$8.05 billion. Meanwhile, net subscriber count is set for an even uglier fate, with expectations of a further 2 million exodus.

If the Netflix share price opens at its after-hours level tonight, shares will be down ~57% so far this year.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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