Investors should not buy Netflix on the dip as the streamer's plans to restart subscriber growth will likely take years to bear fruit, according to analysts across Wall Street. Shares sunk more than 27% in the premarket Wednesday after Netflix on Tuesday reported a loss of 200,000 subscribers during the first quarter — the first time the company has reported a subscriber loss in more than a decade. The streamer also forecast a global paid subscriber loss of 2 million for the second quarter. To bring in new subscribers, management said a global crackdown on password sharing could be coming and the company is exploring lower-priced, ad-supported tiers after years of resisting advertisements on the platform. Co-CEO Reed Hastings said an advertising option likely will not be available for a year or two. "Although their plans to reaccelerate growth (limiting password sharing and an ad model) have merit, by their own admission they won't have noticeable impact until '24, a long time to wait on what is now a 'show me' story," said Bank of America's Nat Schindler in a research note Wednesday. Schindler double-downgraded the stock to underperform from buy, and slashed its price target by more than half to $300 from $605. Bank of America was not alone in its rating change. Nine firms in total downgraded Netflix following the earnings report and many cut their price targets on the stock. Piper Sandler's Thomas Champion called Netflix a "business in transition" after the first-quarter results. "Subscribers have slowed and we struggle to see a return to a pre-COVID net add cadence. Password sharing and ad-supported tiers look promising, but implementation is likely 2+ years away," Champion said in a note Wednesday. Credit Suisse's Douglas Mitchelson also sees promise in an ad-supported tier for Netflix, estimating that rival Hulu makes $10 in advertising per month per subscriber in the U.S. However, Mitchelson said there is "little reason to step in today, 1-2 years before its launch." In the meantime, as the company develops its advertising product and account-sharing monetization, rival streamers could be better positioned than Netflix, Oppenheimer's Jed Kelly said. "The [U.S.-Canada] streaming market is more saturated and filled with a multitude of services offering compelling content at prices lower than NFLX's, including mega-tech platforms with deep pockets," Kelly said in a Wednesday note. With a lack of near-term catalysts, JPMorgan's Doug Anmuth cut his 2022 net additional subscriber projection in half, from 16 million to 8 million. "There's not much to get excited about over the next few months beyond the new, much lower stock price," Anmuth said. "We're moving to the sidelines." Netflix shares could be stuck at these lower levels for some time, according to Deutsche Bank's Bryan Kraft. "We don't expect investors to collectively allocate more capital to owning Netflix in 2022," Kraft said. "We believe investors will want to be closer in time to the implementation of these changes and might want to see some confirmation that they're having the desired effect before rerating the stock higher." —CNBC's Michael Bloom contributed to this report.
The Netflix logo is shown in this illustration photograph in Encinitas, California.
Mike Blake | Reuters
Investors should not buy Netflix on the dip as the streamer's plans to restart subscriber growth will likely take years to bear fruit, according to analysts across Wall Street.