Is the Netflix share price's 20% nosedive an inevitable reality check?

In the world of tech stocks, it’s not the trajectory of growth that matters, but the velocity. And for Netflix, this means subscriber additions.

But the streamer only added 8.3 million subscribers in Q4, 200,000 less than it projected despite increased spending on its original programming. And Netflix only expects to add 2.5 million new subscribers in the current quarter, far fewer than the 4 million added in the same quarter last year, and less than half the 5.9 million forecast by the Refinitiv average analyst consensus.

Moreover, Netflix’s subscriber count only increased by 18 million in this financial year, compared to the 37 million added in 2020. The FAANG stock acknowledges that competition ‘has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering.’ Disney, Apple, Amazon and HBO are all competing for limited consumer income.

But with 222 million paying customers, Netflix believes ‘even in a world of uncertainty and increasing competition, we’re optimistic about our long-term growth prospects.’ Moreover, it argues that with ‘under 10% of total TV screen time in the US, our biggest market, Netflix has tremendous room for growth.’ But JP Morgan CEO Jamie Dimon is predicting up to seven interest rate rises in the US this year, which could affect Netflix’s ability to expand using cheap debt.

However, even after a recent $1 price increase, Netflix’s basic plan in the US is still only $9.99 per month. And with inflation stateside running at 7%, squeezed consumers may prefer a month of streaming entertainment over an evening at an AMC or Cineworld theatre.

The Netflix share price is now hovering just above pre-pandemic levels, even after adding millions of subscribers over the past two years. But with the lockdown factor fading and competition intensifying, an eventual slowdown in subscriber growth was always going to be unavoidable.

And for those hoping for a price recovery, the crucial question is whether subscriber growth is approaching a ceiling, or simply reverting to pre-pandemic norms.

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