For the first time in history, on April 19, 2022, Netflix lost its 200,000 worldwide subscribers, resulting in a massive sell-off of its stock. For this reason, Netflix stock fell by 23% in after-market trading. Instead of adding over 2 million subscribers in the first quarter of the year, as forecasted three months ago, Netflix lost 200,000 subscribers. Worse, the company estimates it will lose another 2 million subscribers in the coming quarter.
Why did Netflix lose its subscribers?
In its letter to shareholders, Netflix acknowledged that the Covid-19 pandemic was the cause of the 2021 slowing growth. However, Netflix ended the quarter with around 222 million subscribers, so it is still the market leader but is facing several challenges. Yet, in January, Netflix reported that it lost 600,000 subscribers from US and Canada as a result of price change. Furthermore, following Russia’s invasion of Ukraine in March, the company suspended its service in the country. According to today’s earnings report, Netflix lost approximately 700,000 subscribers as a result.
As it seeks to maximize revenue from existing users, the streaming giant has recently indicated that it will tighten the screws on customers who share passwords and login information. Password sharing is a huge problem for Netflix. It estimates that up to 100 million households use the service through a shared password. Therefore, it is hard for Netflix to grow its membership in many markets.
In addition to the sharing password issue, the streaming industry has become more competitive. Netflix is competing with more rival services than ever before. One of Netflix’s competitors, Disney plus, announced plans to launch a low-cost, ad-supported tier later this year, making the competition tighter.
In the past, Hollywood was willing to give Netflix access to a large number of its old TV shows and movies because it didn’t believe many people would pay to watch them on the internet. Now, the major films and television studios realize that there is a huge opportunity in the streaming industry. Therefore, they’ve taken a lot of stuff that used to be on Netflix and put it on their own services. For example, Friends is on HBO Max, and all Disney movies are on Disney Plus. As a result, Netflix lost its valuable content.
So, what comes next?
After announcing his company result in an earnings call, Netflix Co-CEO Reed Hastings said that the company would introduce a cheaper, ad-supported option for subscribers and would begin to crack down on people who share their passwords even before that. Netflix will also reduce its spending on films and television shows in response to customer losses.
Netflix has delved deeper into gaming as it seeks new ways to attract new customers. It recently announced a collaboration with Exploding Kittens to create a mobile game as well as an animated series.
Netflix does not expect a high number of new subscribers this quarter in the near future. The company forecasted a 2.5 million subscriber increase compared to the 4 million it gained in the same quarter last year.
Can Muslim invest in Netflix shares?
For some investors, especially value investors, it is essential to know the fundamental analysis of a company. However, Muslim investors are not only concerned about the fundamental or technical analysis of a company; they also care about the halal status of the stock. Therefore, Muslim investors need to ensure the stocks they buy are Shariah-compliant. Musaffa halal stock screener will help you to find out whether Netflix shares are halal or not.
Using the AAOIFI standards adopted by Musaffa, we will look at the Netflix business and financial screening. First, to comply with Shariah, the company’s impermissible income should be less than 5% of its total revenue. In the case of Netflix, it has 1.38% not halal revenue and 98.62% questionable revenue. Netflix’s questionable revenue comes from streaming and DVD services. Therefore, Netflix fails to fulfil the business screening criteria.
Second, following the standards, the interest-bearing securities and assets and interest-bearing debt should not exceed 30% of the company’s market capitalization. In this case, Netflix has 3.09% of interest-bearing securities & assets and 7.86% of interest-bearing debt. The percentage shows that Netflix passes the financial screening criteria. However, since the majority of the company’s revenue comes from questionable income, Musaffa label it as Avoid. Therefore, we suggest Muslim investors to avoid this stock and not to invest in such a company.
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