IN FOCUS6-8 min read

Is misfiring Netflix now a value stock?

Netflix excelled during Covid-19, but now its subscriber numbers and share price have tumbled. We find out what this means for the streaming giant and its investors.



Mark Herlihy
Investment Writer

Streaming service Netflix said earlier this month that it had lost 200,000 subscribers in the first quarter of 2022. The news sent the company’s share price tumbling by almost 40%.

The US company was one of the main beneficiaries of the Covid-19 pandemic, as lockdowns forced people to stay at home. However, as pandemic restrictions lift and people return to more normal patterns of behaviour, many consumers may question their need to pay for such services.

Another factor could be the cost-of-living crisis, which has been exacerbated by Russia’s invasion of Ukraine. This may be prompting consumers to cut back on non-essential spending.

And some recent media reports have suggested that Netflix subscribers are unhappy at the cancellation of some of the company’s shows, and recent price rises.

Can Netflix’s subscriber numbers recover?

So, is the fall in subscriber numbers a natural part of the business cycle, particularly during a period of rising inflation and higher living costs, or is this something more structural? We asked some of our investment experts.

Michael White, Global Sector Specialist – Consumer, said: “Historically, recessionary periods have not hindered consumers’ desire to pay for video; in 2008, Comcast grew its pay TV revenues by 6%. However, in the world of streaming we are entering unchartered territory, having not experienced a consumer income squeeze before. Netflix did grow revenues in 2008, but this was from a low base as it was the only game in town at the time.

“On the one hand, streaming services are more susceptible to churn than traditional pay TV, given the relative ease of cancelling the service. On the other, times of financial pressure can often induce change, making consumers focus on what they really value. As such, perhaps short-term pain for streaming services may develop into further market share gain from more expensive traditional pay TV services.

“From a structural perspective, the slowdown in subscriber growth could also be interpreted as Netflix reaching a ceiling in terms of market penetration. These fears may be warranted in developed markets such as the US, where Netflix’s reach is likely >90% of pay TV households (when including password-sharing). That said, globally the opportunity remains the 700 million-800 million households that currently pay for video.

“Looking more positively, the potential addressable market could expand to over one billion if we look at households with broadband; this is an internet product after all. For context, Netflix most recently reported c.220 million subscribers.”

Is Netflix now a value stock?

Netflix is part of a cohort of fast-growing stocks whose strong share price performance in recent years has helped power equity returns, particularly in the US.

Until recently, investors have been willing to pay ever-higher prices for companies who appear to be growing quickly. However, the downturn in Netflix’s fortunes has seen its valuation decline, as the chart below shows.

Its price-to-earnings (P/E) ratio (current share price divided by expectations for earnings in the next 12 months) has declined rapidly since the start of this year. It now isn’t all that far above the P/E for the MSCI USA Value index.


Duncan Lamont, Head of Strategic Research at Schroders, said: “This is a good example that shows ‘value’ and ‘growth’ are fluid categories. Companies switch sides all the time. It’s one reason why historical relationships between value and growth, and things like interest rates or the economic cycle, are not stable.

“Sometimes value has had more of a bias to defensive stocks, which are resilient even in tougher economic times. Sometimes the bias is to cyclicals, which tend to be more sensitive to the economic environment. Markets are constantly evolving.”

So could Netflix, or other growth stocks, eventually pique the interest of value investors? Value investors look for companies on cheap valuation metrics, typically low multiples of their profits or assets, for reasons which are not justified over the longer term.

Nick Kirrage, co-head of the Schroders Global Value team, said “Areas of the market that have the biggest chance of falling in value are those that are the most expensive. In recent years the most expensive areas have included some of the disruptive, fast-growing sectors like technology.

“There are some phenomenal tech businesses out there, and the time will come when value investors like me will have the chance to buy them. It’s just a matter of being patient.

“There’s a misconception that value investors are always looking in poor quality or unexciting parts of the market. In fact, sectors like pharmaceuticals or consumer staples – which are typically now regarded as high quality, with strong balance sheets and robust cash flows – have in the past been regarded as value sectors.

“Similarly, while the tech and internet stocks have been regarded as ‘growth’ in recent years, it doesn’t mean this will always be the case.”

Demand for high quality TV will persist

Beyond debates over growth and value, or the fortunes of individual companies, what does look certain is that TV-watching habits are unlikely to change.

Michael White said: “There are two things that we know for sure. Firstly, content is king. A recent study by Kantar showed that, while cancellations were on the rise, Netflix and Amazon Prime Video subscriptions were being prioritised over more nascent offerings with less content, such as Discovery+ or Apply TV+.

“Secondly, consumers still want to watch TV. Even excluding the Covid-induced binge, TV viewing averaged 5.3 hours per day in the US between 2010-2019 with very little variation. This suggests the demand for high quality TV shows and films will long live on.”

 Learn more about global equities for individuals.

Important information

Important Information:

This document is issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders). It is intended solely for wholesale clients (as defined under the Corporations Act 2001 (Cth)) and is not suitable for distribution to retail clients. This document does not contain and should not be taken as containing any financial product advice or financial product recommendations. This document does not take into consideration any recipient’s objectives, financial situation or needs. Before making any decision relating to a Schroders fund, you should obtain and read a copy of the product disclosure statement available at or other relevant disclosure document for that fund and consider the appropriateness of the fund to your objectives, financial situation and needs. You should also refer to the target market determination for the fund at All investments carry risk, and the repayment of capital and performance in any of the funds named in this document are not guaranteed by Schroders or any company in the Schroders Group. The material contained in this document is not intended to provide, and should not be relied on for accounting, legal or tax advice. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. To the maximum extent permitted by law, Schroders, every company in the Schroders plc group, and their respective directors, officers, employees, consultants and agents exclude all liability (however arising) for any direct or indirect loss or damage that may be suffered by the recipient or any other person in connection with this document. Opinions, estimates and projections contained in this document reflect the opinions of the authors as at the date of this document and are subject to change without notice. “Forward-looking” information, such as forecasts or projections, are not guarantees of any future performance and there is no assurance that any forecast or projection will be realised. Past performance is not a reliable indicator of future performance. All references to securities, sectors, regions and/or countries are made for illustrative purposes only and are not to be construed as recommendations to buy, sell or hold. Telephone calls and other electronic communications with Schroders representatives may be recorded.


Mark Herlihy
Investment Writer


In Focus
Market views
Follow us

This website is owned and operated by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473).  Your access to this website is subject to the Terms of Use found by clicking the ‘Important Information’ link below.  By using this website, you agree to be subject to these Terms of Use.