By Frank Pallotta and Nicole Goodkind, CNN Business
Netflix, once a Wall Street favorite, suddenly found its way to the ropes.
The streaming giant will announce its second-quarter earnings on Tuesday, and it promises to be one of the most significant moments in the company’s 25-year history.
Netflix is having a terrible year. In April, the company said it lost subscribers in the first quarter of 2022 – the first time in any quarter in more than a decade. Netflix shares then burst into flames (now down about 70% this year), destroying billions of dollars in market value and the company has laid off hundreds of employees.
Losing subscribers wasn’t the only problem that made the Netflix world turn upside down like the kids in Stranger Things. Poor outlook for the second quarter shocked investors: Netflix predicted it would lose another 2 million in spring.
Whatever happens on Tuesday could change the future of the company and the streaming sector as well. Just like Netflix, so is streaming.
Netflix is partnering with Microsoft for its first cheaper ad-supported service
“There will be hell to pay if they report a figure well over 2 million losses,” said Andrew Hare, senior vice president of research at Magid, to CNN Business.
The streaming market has matured and saturated, Hare noted. So investors will be asking, “What’s next and where will the growth come from?”
Netflix places its hopes on a potential savior: advertising.
The company announced Wednesday that it would be working with Microsoft on a new, cheaper subscription plan with ads. Even though Reed Hastings, Netflix’s CEO, has been sensitized to the idea for years, advertising is now a major part of Netflix’s plans to increase revenues in the future. The new tier is rumored to arrive by the end of 2022, but Netflix admits nascent advertising is in a “very early period”.
The company is also focused on reducing password sharing and creating engaging content that will help turn the tide.
But would any of this matter if Tuesday’s numbers were so weak that Wall Street completely turned its back on Netflix?
“When Netflix becomes heavily undervalued by the market, all bets are lost,” said Hare.
The Netflix misfortune continues, the company will cut 3% of its workforce, 300 employees
However, the streamer has some things that work to his advantage.
For starters, it’s still Netflix – the streaming leader with 221.6 million subscribers worldwide. It also reports figures in the market that portrays factors beyond Netflix’s control, such as soaring inflation. So he has these excuses he can rely on to soften the blow from investors.
“Investors will give them time to repair the ship, but need to hear more solid plans for a path to immediate growth,” said Hare. “It’s about communicating how they grow the business to ensure they continue to win in streaming … Nobody wants a business that loses millions of subscribers every quarter.”
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