Netflix Inc. tumbled 35 per cent on Wednesday, in a selloff that wiped out US$54 billion in market value, after it reported a surprise decline in its subscriber base.  

Netflix closed at US$226.19 in New York, extending its plunge this year to 62 per cent -- making it the worst performing stock in the S&P 500 and the tech-heavy Nasdaq 100 indexes. Netflix has a 0.8 per cent weighting on the Nasdaq 100 and 0.3 per cent on the S&P 500. The shares posted their biggest drop since October 2004.

The streaming service shocked Wall Street by losing 200,000 customers in the first quarter, the first time it has shed subscribers since 2011. It also projected it will shrink by another 2 million customers in the second quarter.

“A big problem with Netflix is that it’s too easy to leave the service,” said Russ Mould, investment director at AJ Bell. Consumers feeling the pinch from inflation will be looking hard at their expenses and streaming services are a quick way to save money, he said.

The drop in customers has led Netflix to break some of its long-standing rules: it will introduce a cheaper, advertising-supported option for subscribers in the next couple years and will start to crack down on people sharing their passwords even before that. 

Netflix’s stock has suffered this year as the pandemic-era surge in user sign-ups faded and investors have turned away from high-value technology and growth stocks due to rising bond yields. 

Fellow stay-at-home stocks, including Etsy Inc., Zoom Video Communications Inc. and DocuSign Inc. have also been hit by deep losses, down by 39 per cent to 51 per cent in 2022, as these businesses struggle to leverage the inroads they made during lockdowns.

LONG-TIME BULLS COOL

Netflix’s stock has been a Wall Street darling in recent years, with nearly three out of every four analysts covering the stock recommending a buy at the start of the year. 

Now, even Wall Street bulls are flipping sides after Netflix missed even the most-bearish forecasts, not just once, but twice in a row. Analysts across Wall Street reduced their price targets for the streaming-video company, while at least nine brokerages downgraded the stock. 

JPMorgan’s Douglas Anmuth, who cut his buy recommendation that he had maintained since 2013, said he was encouraged by the company’s intentions of creating an ad business -- a model that has worked for Hulu and Disney+ -- but noted that it was still in early stages.

With the downgrades, the streaming-video company now has the lowest percentage of buy ratings since 2014, according to data compiled by Bloomberg.