Shares of Netflix (NASDAQ:NFLX) fell more than 35% in morning trading on Wednesday after the company posted a significant slowdown in revenue growth and an unexpected net loss in subscribers. While Netflix lost 200,000 subscribers in the first quarter, the company predicted it could lose 2 million more in the second quarter.

The Pandemic Inflated Numbers

Netflix had expected to gain an additional 2.5 million subscribers but instead lost some, bringing its total down to 221.64 million subscriptions.

The streaming giant explained that this drop was mainly linked to the difficulty of acquiring new subscribers in all regions of the world, but also to the suspension of the service in Russia.

Netflix posted revenue of US$7.9 billion from January to March, almost 10% more than a year ago, thanks in particular to the increase in the number of subscribers over one year (+6.7%) and the increase in its prices.

It posted a net profit of 1.6 billion, less than the 1.7 billion in the first quarter of 2021.

Netflix said in a letter to shareholders that the large number of households sharing accounts – combined with competition, creates headwinds for revenue growth. 

The industry pioneer has had inflated numbers during the COVID-19 pandemic. The market expected a correction, but not as strong.

Netflix, recognizing the change in consumer entertainment habits, has started to invest in gaming, but this is not yet contributing significantly to the company’s revenue.

Analysts Cut Targets

A bunch of Wall Street analysts has rushed to cut price targets and ratings on Netflix in response to deeply disappointing results, although the pioneering streaming service’s shares have been under pressure for months.

UBS analysts cut their rating on the stock to Neutral from Buy and lowered their price target to $355 from $575 per share.

Wells Fargo analysts cut their rating on the stock to equal weight from overweight while halving their target price to $300.

J.P. Morgan lowered its overweight rating to neutral while reducing its target price to $300 from $605.