Netflix shares on Tuesday plunged 36%, a day after the company revealed it lost 200,000 subscribers in the first quarter.
The drop in the share price to $224.96 in early morning trading was the steepest in a decade for Netflix.
The last time the company had such a large decline in a single day was on Oct. 11, 2011, when the stock dropped 35%, according to FactSet. The biggest one-day price decline was on Oct. 15, 2004, when shares plummeted 41%, FactSet said.
Investors previously had been bullish on Netflix because of its position as a streaming giant and its unprecedented growth during the pandemic, as people looked for ways to entertain themselves at home. But as competition has increased, that has put more pressure on Netflix to continue to ramp up its subscriber base. Instead, in the first quarter Netflix loss subscribers, and it anticipates it will lose 2 million in the second quarter.
As a result, analysts like Kenneth Leon, research director at CFRA Research, slashed his price estimate for Netflix to $290 a share, down from the previous estimate of $525 a share and moved the firm's recommendation to "hold" from "buy."
"With NFLX subscriber growth coming to a stop with 222m paid members, NFLX shares are likely to come under greater scrutiny about long-term growth," Leon wrote in a note.
To counteract the subscriber losses, Netflix executives said they would focus on continuing to put out compelling content, monetize the sharing of passwords and explore the possibility of adding a lower-priced subscription option with ads, a big shift in the company's strategy.
Already, Netflix's competitors, including Hulu, offer such ad-supported plans. There's also been a surge in free, ad-supported streaming services over the years, including the Roku Channel.
"Amid tumbling subscriber numbers, Netflix finds itself in an entirely different landscape to its pandemic heyday," said Francesca Gregory, thematic analyst at GlobalData in a statement.
Netflix, which has long been the dominant subscription streaming service, said a major challenge to its business is password sharing. On Tuesday, the company disclosed that it believes more than 100 million non-paying households are accessing its service through password sharing, 30 million of which are in the U.S. and Canada region.
There are also websites that allow people to illegally sell Netflix passwords for as little as $1.
The company has been testing ways to encourage non-paying users to sign up for a subscription. In countries like Chile and Costa Rica, subscribers can pay an extra $2 to $3 to add up to two users that are outside of their household. Netflix's terms require subscribers to live in the same home.
Netflix executives in an earnings presentation on Tuesday tried to reassure investors that it has a plan in place to address these issues.
"We've gone through a lot of changes, and we've always figured them out, one by one," said Reed Hastings, Netflix's co-CEO in an earnings presentation on Tuesday. "We lead by a significant margin in streaming and streaming is continuing to grow around the world so we have a bunch of opportunity to improve, but coming out the other side I'm pretty sure we'll look at this as really foundational in our continued journey."
