Why this week would determine the future of Netflix we tell you
(CNN Business) — Netflix, once a Wall Street darling, is suddenly on the ropes.
The streaming giant will present its second-quarter results on Tuesday, and it’s shaping up to be one of the biggest moments in the company’s 25-year history.
Netflix has had a terrible year. In April, the company reported that it had lost subscribers in the first quarter of 2022, the first time that had happened in any quarter for more than a decade. Subsequently, Netflix shares burned (currently down nearly 70% year-to-date), wiping out billions of dollars in market value, and the company laid off hundreds of employees.
The loss of subscribers was not the only problem that turned the world of Netflix upside down like that of stranger things. A weak outlook for the second quarter surprised investors: Netflix predicted it would lose another $2 million in the spring.
What happens on Tuesday could reshape the future of the company and the entire streaming industry. If Netflix loses, it also loses streaming.
“There will be hell to pay if they report a figure significantly higher than the 2 million loss that is being managed,” Andrew Hare, a senior vice president of research at Magid, told CNN Business.
The streaming market has matured and become saturated, Hare noted. So investors will be asking, “What’s next and where is the growth going to come from?”
Netflix pins its hopes on a potential savior: advertising.
The company announced Wednesday that it will partner with Microsoft on a new, cheaper ad-supported subscription plan. Despite the fact that Reed Hastings, CEO of Netflix, was resistant to the idea for years, advertising is now an important part of Netflix’s plans to increase revenue in the future. The new plan is reportedly coming before the end of 2022, but Netflix admits its fledgling ad business is in its “early days”.
The company will also focus on clamping down on password sharing and creating engaging content to help turn the tide.
But will all this matter if Tuesday’s numbers are so lackluster that Wall Street turns its back on Netflix?
“Once Netflix is severely undervalued by the market, all bets are off,” Hare said.
However, the streaming service does have a few things going for it.
For starters, it’s still Netflix, the streaming leader with 221.6 million subscribers worldwide. In addition, it will report figures in a market that presents factors beyond Netflix’s control, such as rising inflation. So you have those excuses you can fall back on to possibly soften the blow with investors.
“Investors will give them time to right the ship, but they need to hear stronger plans on the path to immediate growth,” Hare said. “It’s about communicating how the business is evolving to ensure they continue to win streaming… No one has the stomach for a business that loses millions of subscribers every quarter.”